Given the continued struggle, especially on the part of junior mining companies to find financing, there is perhaps less of a dearth of available funds than many think.
Indeed, according to Mark Tyler, senior investment banker at Nedbank Capital, there is a “wall of funding” waiting in the wings.
“We know that there is something like $8bn sitting in private equity and I think there is a similar amount of money sitting in the public funds, although no one has yet done that calculation,” he told Mineweb on the sidelines of the Investing In African Mining Indaba. But, he says, “the money is getting stuck in the funds and not being invested, mainly because the fund managers are doing far more comprehensive due diligences than have previously been done and not everyone is managing to jump the hurdles.”
Much of the reason for this, Tyler explains, is that there has been a significant difference between the type of returns that have been promised and what has been delivered.
“In the past you had to have a good deposit if you wanted to raise funds, but now you have to have a good deposit and good management. In the past we have had good deposits ruined by poor management; it is easy to do the calculations on the geology, it is hard to do the due diligence on management.”
Global mining leader at Price Waterhouse Coopers, John Gravelle, agrees that there are likely to be some significant private money deals coming on stream in the short to medium term.
Speaking to Mineweb, Gravelle points out that, while there is currently more talk of private equity interest than actual deals closing, he believes that many of the rumoured acquisitions will begin to take place.
“There’s a lot of money that’s been raised for doing acquisitions. If you’re reading all the media you hear rumours of private equity being all over a lot of the properties that are being sold now and at some point they’re going to start pulling the trigger and we’re going to see some major private equity players get into the mining market.”
Rajat Kohli, Global Head of Mining & Metals at Standard Bank, puts the figure at $10bn, if not more, sitting in everything from sovereign wealth funds, to PE funds, hedge funds, family offices, high net worth individuals and finally, the trading companies who, he says, are putting a lot of capital into projects today.
He too believes that while there has not yet been a significant volume of deals, there is likely to soon be some movement in this space, which should go some way to filling the gap created by a lack of intent on the equity side.
However, he says, this gap could also close a little, especially in the junior space, but will be driven by practicality.
“If you're running out of cash you will have to do something dramatic. If you're a major, you’ve got multiple projects in multiple jurisdictions, you're generating some cash flow, you can wait.”
“And, he says, “given the torrid experience that majors have had in the last 18 months… the balance of power has shifted back to the investors. Investors have said to the majors, stop investing capex in projects which can’t justify a return, start giving back capital to us as your shareholders… the major houses will remain a little cautious.
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