Excellent catch @tlc2008 Private equity ready for mining M&A as...

Excellent catch @tlc2008

Private equity ready for mining M&A as activity hits a low

http://www.smh.com.au/business/mini...a-as-activity-hits-a-low-20150514-gh1g3o.html




Deals done in Australia in the three months to March amounted to just $154 million. Photo:

The level of mergers and acquisitions in the mining industry is continuing to plunge, but advisers are betting the nadir is near and a brightening outlook for base metals could help spur a recovery.

Ernst & Young transactions partner Paul Murphy said the huge pool of private equity money earmarked for mining assets could find a home in base metals, but was only likely to be deployed at the "very last minute" when there were clear signs of a price uptick.

He said private equity was "looking for indicators that give them confidence they are going to get the 20 or 30 per cent returns that they need to deploy their capital".

The best signals for that are coming out of base metals, including copper, bauxite, and zinc, with any increase in weak M&A activity likely to be coming from those commodities, he said.

"The supply-demand dynamics are starting to get a bit clearer, and eventually the private capital money will start to flow."

EY's latest statistics on mergers and acquisitions show mining deals done in the March quarter fell sharply to $US5.9 billion, against $US7.2 billion in the year earlier period, and a third lower than the $US8.9 billion booked in the December quarter. Most of the deals were done in steel and gold, out of Canada, China and the US. Deals done in Australia in the three months to March represented just 2 per cent, $US125 million ($154 million) of total deals.

Initial public offerings also fell off a cliff in the March quarter, with just $US15 million raised, compared with $US322 million in the December quarter, and 98 per cent lower than the $US715 million booked in the same period in 2014.

"We can't take the lead we've seen from iron ore as a generalisation for the sector," Mr Murphy said.

"The greatest potential for deals is in copper, zinc and other base metals. And we expect there could be some consolidation in strategic metals (graphite, lithium, vanadium) and mineral sands, given the rapid development in energy storage and composite materials technology."

The industry was frantically trying to pick the bottom of the cycle across commodities, which Mr Murphy said could be close for base metals.

Stability in commodities pricing for base metals, and miners restructuring their portfolios, "would help drive more deal activity than we have seen in the past year, which could be close to bottom of the M&A cycle for the sector".

"We were initially surprised that more private equity money around hasn't been deployed, but in retrospect it was the right decision," said Mr Murphy, who specialises in resources transactions.

"That private equity sector is very financially driven and metric-based so cannot afford to tie up capital in projects if they get the cyclical uptick wrong by, say, five years.

"Private capital will only come into mining at the very last minute before they see an uptick [in price]."

The sharp drop in mining costs, both for development projects and production, would also shore up private equity investors' projected return on capital.

"Cost curves are being rebased, which is a very positive indicator for investment in the sector."

Mr Murphy also questioned whether the time was coming for global miners to focus more on future growth options.

"Although the attention to shareholder returns are constraining investment of capital – it is the time in the cycle to create optionality to underpin a longer-term growth pipeline. That might mean you look at options to diversify.

"Do they need to be thinking more about strategic minerals (graphite, lithium, vanadium)? Is there a consolidation play with the best tier one assets in that space?"

http://www.smh.com.au/business/mini...a-as-activity-hits-a-low-20150514-gh1g3o.html

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I wanted to fully post this so this can fully be appreciated. Great job tlc2008

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