Private Equity Investment in Mining Projects Doubled to $4.5 Billion in 2015

By Alex MacDonald

LONDON-- The value of private equity investment in mining projects doubled to $4.53 billion last year, as miners attempted to find an alternative source of finance amid difficulties in the public debt and equity markets.

Data released by law firm Berwin Leighton Paisner also showed that the equity component of all private equity investments in mining rose 58% to $3.15 billion last year, although the average size of private equity deals shrank by a third to $26.5 million from $40 million the year before.

This was due to the fact that the number of transactions more than trebled to 119 last year, as the prices for many commodities tumbled to multi-year lows.

Private equity groups carried out a mix of transactions that included not only equity investments but different forms of debt issue and royalty agreements, the law firm said.

The-pick up in private equity mining investment highlights the difficulties that many miners, particularly those with heavy debt burdens, are facing in raising capital from the public debt and equity markets amid a protracted commodities price rout.

"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 favored structures in 2016," said Alexander Keepin, Partner, Corporate Finance and Co-Head of Mining at BLP.

Private equity groups were most attracted to gold by deal volume in 2015, BLP said. Such transactions accounted for 36% of the 119 deals last year. Copper, however, was the biggest deal driver by value, attracting a combined investment of $868 million. North America attracted the largest number of deals, 40, at a combined value of $758 million. But Europe attracted the largest investment value, $922 million in total despite the number of deals dropping to six.

BLP said that nearly 10% of all the deals stemmed from a wider refinancing or restructuring process that often included a formal bankruptcy proceeding. More than 46 mining and metals companies entering formal bankruptcy proceedings last year as a result of the sustained low commodity price environment, said consultancy and accountancy firm Ernst & Young in a report last week.

This is partly skewed by the U.S. where bankruptcy proceedings are more lenient. The North American coal sector was the hardest hit, with at least 20 companies filing for bankruptcy proceedings, E&Y said.

Overall, global mining and metals mergers and acquisition deal volume fell to its lowest level since at least 2000, with just 358 deals completed in 2015, down 10% from a year before. Excluding the $8.7 billion demerger of South32 Ltd (S23.AU) from BHP Billiton Ltd (BHP), overall deal value dropped 34% to $40 billion last year, the consultancy firm said.

-Write to Alex MacDonald at [e-mail]

(END) Dow Jones Newswires

February 08, 2016 10:55 ET (15:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.