Facts ‘n’ figures: A close look at 2014’s private equity mining deals

The following is an edited report released by London-based international law firm Berwin Leighton Paisner (BLP). The report analyzes 50 mining private equity investments in 2014. For more information about BLP, visit www.blplaw.com.

Private equity transactions in 2014 ranged from outright acquisitions of companies or projects to acquisitions of strategic stakes and increases of stakes/follow-on raises. They also included deals backing management teams to make acquisitions in favoured commodities. 

Number and size of investments. There were in total 50 reported investments. There were 11 acquisitions, 22 strategic stakes, 14 increases of stakes and three management team backings.

The total amount invested across 47 investments (excluding three where deal amounts were undisclosed) was US$2.1 billion, with an average investment size of US$43.8 million.

Aquisitions. Acquisitions were typically of larger projects or producing mines, and the average size of the investment in outright acquisitions was US$131 million.

Strategic stakes. Acquisitions of strategic stakes, often in public companies, accounted for the most deals, with over 40% of all investments reported. The average size of the strategic stake investments was US$17.4 million. Percentage interests held following these strategic stakes averaged 21%.

Increased stakes. There were also a further 15 investments where the size of the investment was increased. The average size of the investment where there was an increased stake was US$19.7 million, and again for the deals reported, these were often investments in publicly listed companies. The additional percentage by which the funds’ holdings increased ranged from zero (i.e., just protecting the size of their stake where there has been a follow-on fundraising) to 13.1%, with an average increase of 7.7%.

Management team. Certain management teams also received substantial backing by private equity with funds backing management teams, with a particular commodity focus in three investments with an average investment size of US$118.3 million. While these could be viewed as the establishment of further private equity funds, they tended to have a specific commodity focus and were meant to build operating businesses.

Funds behaviour. Investments by an individual fund were most likely to be either an acquisition of a strategic stake (11 investments) or an outright acquisition (four investments).

However, funds often acted together with two or more funds making an investment at the same time. This accounted for four outright acquisitions, three acquisitions of strategic stakes and three stake increases.

In the case of 17 investments where the fund participated as part of a wider fundraising, which tended to be public market transactions, most investments involved either an acquisition of a stake or a stake increase. 

The most active fund in those reported investments was the Sentient Group with five deals, followed by Resource Capital with four deals. Four other funds made three investments each.

Which commodities were hot?

Gold was the most popular commodity with 15 investments, followed by coking coal with six investments. Other than these commodities, the investments were spread across a range of commodities. This is not so surprising, as you might expect funds to spread their investments to limit their exposure to volatility in a particular commodity.

There was no clear preference for a type of commodity where the deal was an acquisition, which were the larger investments, with one or two deals occurring in eight different commodity types. This may suggest that the stage of development or economics of the particular project drove the investments rather than a specific commodity focus.

Gold was the most popular commodity for funds purchasing a strategic stake (four), followed by copper. Ten other commodities had one or two deals each throughout the year.

Again, gold was the most popular commodity for funds to increase their stakes or follow their investment with eight deals, while other investments spread across a range of commodities.

Management team backing was split between base metals, coking coal and gold, with one transaction each.

Geographical breakdown

The geographical spread for the investments was wide. Most deals were completed for companies in North America (14), followed closely by Africa (12). Asia and Russia were the least active markets, with only four deals between them. 

North America had the greatest number of acquisitions (six); significantly more than the next most popular jurisdictions — Africa and Europe, with two each. 

South America had the most increases of stakes (five), followed by Africa and Europe, with three each. 

Management team backings only occurred in Australia and North America. 

The most strategic stake deals occurred in Africa (seven), followed by North America (five).

 The table on Page 4 shows the number of deals and values completed in each jurisdiction.

Looking forward

The 50 investments examined in this report represent more than US$2 billion of equity invested in mining companies by 30 private equity funds in 2014. This activity should only be the beginning, as private equity investment in the mining industry builds momentum. Assuming funds seek to deploy their capital over a two- to three-year investment horizon, there remains at least another US$6 billion to be invested in the next 18 to 24 months. As these funds seek to deploy their capital, we can expect further, more significant, private equity investment in the mining industry in the next 12 months.