* Supply problems partly due to Chile's deteriorating ore
grade
* No new, game-changing deposits founds despite 2002-2011
rally
* Private equity looking to pick up distressed assets
By Pratima Desai
LONDON, March 10 (Reuters) - An expected global shortage of
copper in years to come has thrown a spotlight on the value of
mines that produce the metal, with scouts from private equity
firms, trading houses and miners sniffing out potential targets.
Strong interest in good quality copper assets was recently
highlighted by Sumitomo Metal Mining 5713.T buying another 13
percent stake in Freeport-McMoRan's FCX.N Morenci mine for $1
billion.
Earlier on Thursday, Swedish mining and smelting group
Boliden BOL.ST struck a deal to buy the Kevitsa mine in
northern Finland for a cash consideration of $712 million.
"Copper is the most sought after commodity, it's a good time
to buy copper assets now, there are some very visible deficits
coming up at the end of this decade," said Simon Lovat, a
commodity analyst at fund firm Carmignac.
Forecasts for more than two years out are difficult as much
could change, but there are some; Deutsche Bank (DE:DBKGn) analysts expect
small surpluses this year and next, a deficit of 280,000 tonnes
in 2018, 350,000 in 2019 and 280,000 in 2020.
The problem is mainly on the supply side, partly in top
producer Chile, where output has slipped in recent years.
Chile's copper output last year was 5.76 million tonnes,
about 25 percent of the global total, and expectations are for
further falls due to deteriorating ore grade and a lack of
investment in the mining and power industries.
Elsewhere around the world, the quality of the ore is not
what it was and, despite copper's CMCU3 surge from $1,500 to
above $10,000 a tonne between 2002 and 2011, no new, large,
game-changing deposits have been found.
The prospect of deficits has attracted attention.
"Major Japanese trading houses trade commodities locally and
internationally. They have over time been increasing their
exposure to mining," said Raj Karia, Head of Corporate, M&A and
Securities at Norton Rose Fulbright.
"Trading houses broadly should be looking to pick up assets
to integrate their trading operations with ownership of assets.
There is substantial private equity capital available for
mining, some estimate about $10 billion globally."
Private equity firms looking at mining include Madison
Dearborn, Denham Capital Management, KKR, Apollo Global
management, Resource Capital Funds and Orion Resource Partners,
according to data provider Preqin.
Banking sources say private equity on average accounts for
more than 50 percent of participants in potential mining M&A
deals. "They are there in case the process fails, they can then
scoop up distressed assets for a song," one banker said.
X2 Resources, a mining venture, supported by Noble Group,
TPG Capital, sovereign wealth funds and pension investors, is
also in the fray.
Rio Tinto 's RIO.L Chief Executive Sam Walsh last month
said his team was keeping an eye out for top-tier assets,
particularly in copper.
South32 S32.AX also recently joined the ranks of miners
willing to make acquisitions. "Copper is obviously attractive
given the supply demand fundamentals," the company's Managing
Director Graham Kerr said in February.
"The Chinese are there too, they need copper, they have to
import it," a banking source said.
Copper mines under the hammer include Glencore 's GLEN.L
Lomas Bayas mine in Chile and Cobar in Australia.
But overall, though there are many mining assets up for
sale, few produce copper. So, the focus will increasingly turn
to smaller copper miners such as First Quantum FM.TO and
Central Asia Metals CAML.L , with low production costs.
"Good copper mines are a compelling investment, because they
are a depleting asset," said Allianz (DE:ALVG) Global Investors UK
equities portfolio manager Matthew Tillett, who recently bought
shares in both companies.
"The supply numbers analysts have in their models are
unlikely to happen in reality if prices aren't high enough...My
main concern is demand coming in below expectations."
Others agree much depends on China, the world's largest
consumer of the metal used in power and construction, where
demand growth slowed to around 2 percent last year and is
expected slow further over coming years, possibly towards zero.