Globally, 2015 was a busy year for mining private equity with over $3,2 billion invested, spread over 119 investments. This was over 57 percent more money invested than in 2014 and more than double the number of deals in 2014.
Overall in 2015 there were a larger number of investments, with a smaller average ticket size of $26,6 million, as opposed to $40 million in 2014.
This underlines the wider issues in the industry with the backdrop of falling equity and commodity prices.
The falling equity prices mean that equity investments can be highly dilutive for existing investors, and may not generate the returns that private equity investors are looking for.
This has led to private equity firms seeking alternative structures to generate their returns.
In 2015, 11 percent of the equity deals included exposure to the underlying commodity, whether by way of royalty or stream.
A further $647 million was invested in 2015, alongside the equity investments, for royalties or streams.
In these deals, the payment for the royalty or stream involving equity investment lifted the amount invested by private equity firms from $3,2 billion to $3,8 billion.
Gold, copper, zinc, nickel, uranium and diamond deals were all paired with royalties or streams in 2015.
There were also 18 equity investments, 15 percent of the mining private equity deals, which included convertible debt amounting to an additional $738 million.
Taking this into account, the total invested in mining by private equity in 2015 was $4,5 billion.
Another significant theme which developed in 2015, and which is also indicative of the wider issues in the industry, is refinancing.
Ten deals (9 percent of all deals) involved a refinancing or restructuring, a number of which were as part of formal insolvency processes.
Many private equity funds are raising further funds, or will look to do so in 2016, and this, combined with the anticipated acceleration of divestment programmes by the Majors, looks like it will drive further mining private equity activity in 2016.
By value, bauxite was the second most popular commodity and coal the fourth.
Interestingly, potash also makes the top five commodity lists, ranked fifth both by volume, and number of deals.
Copper attracted the most money – $868 million, with a quarter of all the equity investments by value being in copper projects.
These also tended to be higher value deals as copper was the second most popular commodity by number of deals with 17 percent of deals.
Gold was still the most favoured commodity for private equity in 2015.
Gold investments made up over a third of all deals by number.
However, by amount invested, Gold was the third most popular commodity.
Ten investments (9 percent of all deals), representing $160 million of the total amount invested in 2015, were made as part of a restructuring or refinancing.
A number of these were part of a formal insolvency process.
Over half of the investments that involved restructuring or refinancing, included an increase in equity stake, while only two involved an outright acquisition
Africa only saw a modest increase in the money invested in comparison to 2014 (22 percent).
While there have been nearly twice as many deals (22), the amount invested has not risen at the same rate.
Investors into Africa have been looking at ways to alternatively structure their investments, with 18 percent of deals based in Africa involving an element of streaming or royalties. – Berwin Leighton Paisner’s Research.