Mining and metals attracting private capital investors

Private equity funds were increasingly looking at the mining and metals market for possible investment, advisory firm Ernst & Young (E&Y) Australia and Asia-Pacific mining and metals transaction leader Paul Murphy said.

“There is increasing interest in mining and metals from private equity funds, other specialist funds and sovereign wealth funds and we see this trend continuing into 2013,” Murphy said this week, which was despite the challenging market conditions facing junior and midtier miners.

“Private capital is increasingly looking to take advantage of low equity valuations to take opportunistic or strategic noncontrolling equity stakes in mining and metals assets at what they perceive as an opportunistic time in the cycle.”

Murphy said preliminary analysis by E&Y suggested that private capital investors accounted for 21% of mining mergers and acquisitions (M&A) globally in the nine months to September 2012 compared with just 12% for the same period in 2011.

He noted that, typically, financial investors were seeking “toehold” investments of between 10% and 15% that could mitigate risk with a combination of debt and equity. Convertible debt had also been a popular financial instrument for the sector in Australia, which Murphy said exhibited the characteristics of both.

Furthermore, State-owned enterprises were increasingly adopting a larger “foothold” investment strategy with the ultimate objective of securing longer-term strategic supply.