Could private equity fill the mining M&A vacuum?

* Miners' performance: http://reut.rs/1HSdasc
* Market caps lowest since post-Lehman trough
* Miners' market cap: http://tmsnrt.rs/1HScovk
* Miners don't need to expand capacity

By Clara Denina
LONDON, Dec 8 (Reuters) - Expectations of a takeover frenzy
in global mining have been dashed by falling commodity prices,
leaving the field open for private equity funds looking to
deploy billions of dollars.
Consolidation in previous times has been driven by major
mining companies seeking extra capacity due to strong demand and
rising prices.
The delay in their acquisition plans, of possibly two to
three years, leaves a vacuum that some in the private equity
business see as an opportunity.
Data provider Preqin estimates private equity funds have
access to $4.4 billion of capital for mining investments. Some
of those funds say conditions are now ripe for them to move.
"This is a prime time in the market for us," Denham Capital
director Caroline Donally said. Denham has around $1 billion
invested or committed in mining.
With commodity prices still falling, investors in large
firms are nursing their wounds.
BHP Billiton BHP.AX BLT.L shares are down more than 60
percent since July last year at seven-year lows, Rio Tinto
RIO.L RIO.AX 's stock has tumbled more than 40 percent and
Anglo American AAL.L has plunged 70 percent this year.
ID:nL8N13X15H
The combined market cap of 95 major mining firms around the
world has dropped below $400 billion, the lowest since the
post-Lehman troughs and a far cry from the peaks of $1.8
trillion hit in April 2011. This is having a knock on effect on
privately owned mining companies too.
"Companies and management teams are starting to capitulate
around valuations and we're starting to see a lot more assets
become available, which historically we never could tap,"
Donally said.

FINANCING GAP
Miners have also lost huge chunks of financing, as Western
banks withdrew from commodity trading.
While many equity investors have lost confidence in a sector
that squandered money on costly expansion projects, private
equity investors, typically pension funds, college endowment
funds or high net-worth individuals, take a much longer term
view, often 10 years.
"It will be a couple of years before M&A comes back," said
Mark Sawyer, senior partner at private equity fund, Greenstone
Capital. "As traditional lenders and equity capital markets get
more cautious and more reluctant to invest, then they of course
create a vacuum."
Like Donally, he argued that opportunities for private
equity firms are improving because potential target companies
are becoming more realistic about valuation.
Denham said it had had two deals lately: in one, in
Australia, it funded Auctus Minerals to take over Atherton
Resources, a company with base metals assets.
Another fund, Pacific Road Capital Management, has two
mining funds that are fully invested, one at around $300 million
and the other at $475 million.
Yet another, RFC Ambrian, secured £14.7 million financing in
a coking coal mine near Whitehaven, Cumbria, UK.

SOME CAUTION
Not all private equity investors are ready to bet on mining
just yet. In a record year for funds raising capital to invest
in natural resources, the mining sector was a weak spot, with
only $0.4 billion committed, according to Preqin research.
That is partly because, China, the main source of demand
growth for industrial metals over the past 15 years through
infrastructure and industrial capacity, is switching to a
consumer-led economy, raising questions about future prices.
However, private equity funds committed earlier to mining
are still available.
Funds are tight-lipped about their investment plans, but
typically operate in mature markets like Australia and Canada,
but also resource-rich Russia or West Africa although they avoid
politically challenging environments.
One mining consultant said they would likely be looking at
opportunities that are much more specific than output growth.
"Private equity will probably be more interested in niche
situations, where they can see a story or a situation that plays
to their strengths, perhaps financial engineering or distressed
situations," the consultant said.

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Miners' performance http://reut.rs/1HSdasc
Miners' market cap http://tmsnrt.rs/1HScovk
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