Private equity activity in the mining sector doubled in volume in 2017
Research conducted by international law firm Berwin Leighton Paisner (BLP) has found that the volume of private equity deals in the mining sector doubled to 60 deals in 2017, compared to 30 in 2016. Total deal value rose by 31% in 2017 to $2.3bn compared to $1.75bn in 2016.
In addition to looking at value and volume, BLP’s fourth annual Private Equity in Mining report explored the different commodities, geographies and structure used in private equity deals.
Africa comes to the forefront
As the mining industry congregates in South Africa for the Mining Indaba conference, it is interesting to note that Africa has been the principal beneficiary of 2017’s increase in mining deals, with 45% of the total investment deployed in the region, amounting to over $1bn of investment.
Private equity seeks new investments
The funding structure of the deals provides insight into a perceived market recovery. Acquisitions in 2017 remained relatively stable, accounting for 55% of deals compared to 64% in 2016 and 52% in 2015. Elsewhere, the number of investments to acquire strategic stakes has risen to 40%, a steady increase from 30% in 2016 and 17% in 2015.
Meanwhile, increased stake investments have fallen to represent just 5% of deals, compared to 19% in 2015, perhaps reflecting increased stability and a move from the often distressed situations where firms had to increase stakes to protect their investments.
Investment into gold has fallen from over $1bn in 2016 to $250m in 2017, however the number of deals remained stable in 2017 at 14 compared to 12 in 2016. A resurgence of copper saw deal volumes rise by 400% to 20 deals in 2017, amounting for $1.6bn of investments and 70% of total deal value in 2017. Battery metals accounted for the third most popular commodity investment in 2017, with 14% of deals and $175m of investment.
Alexander Keepin, author of Private Equity in Mining: 2017 report and Head of Mining at Berwin Leighton Paisner, said: “2017 was a strong year for mining private equity investments. 2017 saw a marked change as the sector recovers and capital was deployed for new investments, rather than protecting existing investments. The other standout point was the switch from gold to copper as the most favoured commodity. Copper is often referred to as a bellwether for the wider industry and so 2018 looks promising. Investments into Africa in 2017 were greater than the previous three years combined as private equity sought out copper, gold and battery metal deals.”