Over USD3.15 billion of private equity investment was injected into mining projects during 2015 over 119 deals, according to law firm Berwin Leighton Paisner’s (BLP) latest annual Private Equity in Mining Report.
The research, published at the start of Investing in African Mining, Indaba 2016 in Cape Town, shows a 238 per cent increase in activity and a 57 per cent increase in the amount mining private equity invested when compared with 2014. This had the effect of reducing the average investment size from USD40 million in 2014 to USD26.5 million, not surprising with falling equity and commodity prices.
The wider issues in the industry have also encouraged private equity investors to seek alternative structures to generate returns, with 11 per cent of deals in 2015 having exposure to the underlying commodity, for example by way of a royalty. A further 18 per cent of the equity investments were coupled with some form of debt. Taking into account these alternative structures, the total that was invested in 2015 was USD4.53 billion, doubling the amount invested when compared with 2014.
Alexander Keepin (pictured), Partner, Corporate Finance and Co-Head of Mining, BLP, says: “Despite 2015 proving to be another difficult year for the mining industry, private equity activity in the mining sector has increased significantly.
“What’s interesting about this year’s report is the shift towards alternative funding structures by private equity funds as they seek to structure their investment to participate in the project economics in a number of ways – equity, debt, royalties.
“With the pure equity deals being seen largely as highly dilutive, equity interests combined with debt or exposure to underlying commodities through royalties are likely to continue to be the favoured structures in 2016.
“The continued depression in commodity prices and equity markets for natural resource companies means that private equity funding is likely to continue to be a primary source of finance in the mining industry in the next 12 months.”