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Momentum is building - Private equity in the mining industry

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Interviewee: Alexander Keepin, Partner, Corporate Finance & Co-Head of MiningInterviewer: Alexander you have just published a report into deals and transactions by private equity into the mining industry, what have you found?Alexander: Well we looked at the private equity industry because Bloomberg reported 12 months ago that $8 billion have been raised for investment in mining. They revised that figure earlier this year to $12 billion and so there is a wall of money that should be coming into the mining industry. There is a perception that there has not much activity in the mining industry in the last 12 months so we wanted to look at whether that private equity money is starting to come through to the industry. We found that there were 50 deals reported and over $2 billion dollars has been invested so far. Interviewer: And what were the main findings of the report?Alexander: The main findings is that the private equity funds were investing in one of two ways. They were either making an outright acquisition of a project and these tended to be larger transactions with higher value. Alternatively they were looking at taking strategic stakes and a strategic stake is sort of 20, 30% depending on takeover rules that don’t want to trigger a takeover for the whole project but want to be a significant shareholder and exert influence over the project. Those tend to be smaller investments averaging around $17 million but they give the private equity company a firm foothold.Interviewer: And geographical which regions are the busiest?Alexander: The busiest is North America. There were 14 transactions in North America and actually over half the money deployed was on North American projects. I think the main reason for that is that the North American mining industry tends to be a bit more developed so you are finding that there were more transactions which were outright acquisitions and so of higher value. What is interesting for us is that 24% of the transactions so about 12 transactions took place on the African continent. Those tended to be smaller acquisitions of strategic stakes and about 15% of the total money deployed was deployed into Africa last year.Interviewer: But I’m guessing gold still attracts most interest?Alexander: Yes you are right. Fifteen of the investments were in gold and that was by far the stand out commodity. I think people are looking at that more as a sort of currency head rather than just on a pure commodity basis. Coking coal surprisingly was the next most significant commodity. There were six investments into coking coal projects and then the rest were split between a whole range of commodities. The other interesting point though was that there were no investments into iron ore projects perhaps reflecting how poorly iron ore prices are at the moment.Interviewer: None at all?Alexander: None at all.Interviewer: OK. If a mining company is looking to attract private equity, what are the sorts of things they need to be aware of?Alexander: I think the first thing is that the private equity fund when parting with its money is going to want to do due diligence. There will be technical due diligence on the geology, they will want to visit the mine site and then there will be legal and financial due diligence. This can be over quite a condensed period say four weeks but the private equity fund will be asking lots of questions and management have to be prepared to commit to the time to answer those questions in order to satisfy the private equity fund. The other thing is that the private equity fund will want some management control and influence over the business and a number of mining companies actually welcome this because they see the private equity funds also as a source of expertise.Interviewer: Alexander Keepin, thank you.Alexander: Thank you.

Bloomberg recently reported that $12bn had been raised by private equity funds for investment in mining, yet the perception is that there hasn’t been much activity in mining during the calendar year 2014.

In this video, Alexander Keepin, Partner in Corporate Finance and Co-Head of Mining, unpicks BLP’s latest research report which analyses whether private equity funds are actually making investments into the sector, the geographical hotspots for this and which commodities were most popular during 2014.

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