Publishing Date
06 Mar 2013 12:41pm GMT
Author
Mining Journal
Private equity firms are to invest more heavily in the resources sector to take advantage of declining company values, according to Ken Hoffman, head of metals and mining at Bloomberg Industries.
Speaking to media delegates at the Prospectors & Developers Association of Canada 2013 convention, Hoffman said funds raised by private equity for the mining sector had more than tripled from US$960 million annually between 2000 and 2005, to US$3.5 billion annually since 2010.
He said the recent deterioration in market conditions, including declining merger and acquisition activity, tight equity markets, and significant falls in company values meant financially-strapped exploration and mining companies had very few options going forward.
He said private equity funds had the “exact opposite problem” with almost unlimited access to capital but with very few dependable investment destinations.
He expected private equity funds to invest in mining companies to secure steady streams of cash flow.
“In London I have heard there are a lot of private equity funds sniffing for talent in this space,” Hoffman said.
He said in the past six months alone, private equity firms had raised about US$5.5 billion for the mining industry, and London bankers expected private equity firms to raise US$10-US$15 billion for the resource sector in the next 12 months.
“My assumption is that the first funds to do these mining deals will be highly successful because no-one is really looking (to invest in mining at the moment), so they can just walk in the door and pretty much cherry pick the deals that they want,” Hoffman said.