Private equity investment into mining doubles in 2015

International law firm Berwin Leighton Paisner (BLP) has today (8 February 2016) released its annual ‘Private Equity in Mining’ report revealing that over $3.15bn of private equity investment was injected into mining projects during 2015 over 119 deals.

The research, published at the start of Investing in African Mining, Indaba 2016 in Cape Town, shows a 238% increase in activity and a 57% increase in the amount mining private equity invested when compared with 2014. This had the effect of reducing the average investment size from $40m in 2014 to $26.5m, not surprising with falling equity and commodity prices.

The wider issues in the industry have also encouraged private equity investors to seek alternative structures to generate returns, with 11% of deals in 2015 having exposure to the underlying commodity, for example by way of a royalty. A further 18% of the equity investments were coupled with some form of debt. Taking into account these alternative structures, the total that was invested in 2015 was $4.53bn, doubling the amount invested when compared with 2014.

Other key findings within the report include:

  • Gold remains the most favoured commodity for private equity investors, accounting for over a third (36%) of all deals.
  • By value, Copper was the most popular commodity invested in, attracting $868m
  • North America continues to see the largest number of deals, with $758m invested in 40 deals.
  • Europe was the only region that had a decrease in the number of deals (six), but has overtaken North America with the total value of those deals hitting $922m.
  • The number of African deals has nearly doubled in 2015, although Africa only saw a 22% increase in the amount invested, $367m.
  • Nearly 10% of all deals were as part of a wider refinancing or restructuring, often including a formal insolvency processes.

Alexander Keepin, Partner, Corporate Finance and Co-Head of Mining, BLP, said: “Despite 2015 proving to be another difficult year for the mining industry, private equity activity in the mining sector has increased significantly.”

“What’s interesting about this year’s report is the shift towards alternative funding structures by private equity funds as they seek to structure their investment to participate in the project economics in a number of ways – equity, debt, royalties.”

“With the pure equity deals being seen largely as highly dilutive, equity interests combined with debt or exposure to underlying commodities through royalties are likely to continue to be the favoured structures in 2016.”

“The continued depression in commodity prices and equity markets for natural resource companies means that private equity funding is likely to continue to be a primary source of finance in the mining industry in the next 12 months.”

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