The slump in commodities to the lowest in more than a decade is likely to spark a surge of deals this year by mining-focused private equity groups that have so far bided their time on the sidelines.
A swathe of funds including X2 Resources, headed by former Xstrata Plc Chief Executive Officer Mick Davis, were started at the tail-end of a decade-long commodities boom, raising more than $12 billion in the last two years, according to Bloomberg Intelligence. To date, they have largely kept their powder dry.
“We believe the opportunities are stronger now than they have been over the past couple of years, given the decline in commodity markets,” Lloyd Pengilly, who spent almost 30 years at JPMorgan Chase & Co. before starting mining fund QKR Corp. in 2012, said in an interview. “Private equity firms have watched the market decline and would have adjusted their strategies according and will be looking to rifle-shot opportunities.”
Funds spent a fraction of the money at their disposal last year. A total of 50 deals totaling more than $2 billion were reported by private interests in the mining sector, according to analysis by law firm Berwin Leighton Paisner released Monday. Gold was the most popular for dealmakers with a total of 15 transactions completed followed by coking coal with 6 deals, the analysis showed. The average investment was $43.8 million.
“This is really the time to be going out and making acquisitions,” Neil Gregson, who manages about $3 billion of natural resource stocks at JPMorgan Asset Management in London, said by phone. “Don’t wait for the peak of the cycle in the game, strike while things are bombed out.”
