Indaba 2015 closed last Thursday 12th February and here is a quick re-cap on the key themes discussed with mining companies, bankers and PE funds at the conference.
Where is the money?
Equity capital markets remain tight for mining companies with both IPOs and secondary fundraisings being fewer and smaller over the past year. Research released by one investment bank suggested capital markets investment across AIM, ASX and TSX is off by as much as 50% compared with 2011, when the market turned for mining companies. There remains some interest in additional listings, particularly standard listings in London, but these are unlikely to be accompanied by significant fundraisings in the short term.
To the extent there is money out there, it appears to be largely private equity money. Bloomberg has revised it’s estimate of funds raised by private equity for the mining sector to $12bn. With BLP’s research showing $2bn was deployed in 2014, there is some $10bn available to be deployed over the next two to three years. There was also increased optimism about project finance.
What are PE funds looking for?
According to BLP research and discussions with leading funds, there are two key types of funds active in the market.
First, there are the smaller PE funds (with up to c. $200m available), which have tended to focus on taking strategic stakes and providing development capital to get good assets into production.
Second, there are the larger PE funds ($200m plus), which have tended to focus more on outright acquisitions where they can deliver capital and expertise to materially improve the performance of assets.
In each case, and like PE funds across the board, these funds have been taking carefully calculated risks based on thorough due diligence and have sought to invest in reliable management teams with strong track records.
Some PE funds have indicated a willingness to invest pre-BFS.
What are banks looking for in providing project finance?
Although there seems to be increasing willingness and competition among banks in the mining and power sectors, bankability requirements remain stringent and project financing continues to be elusive for companies that are pre-BFS or lack the significant equity required by the lenders.
How are companies holding up?
All things considered, times are tough for companies, particularly at the junior end.
Juniors are increasingly running out of cash, while investors are increasingly unwilling to fund companies which are perceived to be lifestyle mining companies. In this environment, companies are under increasing pressure to demonstrate the value of their assets and, ultimately, how they can produce ore at a profit, as well as financial discipline.
So what is the outlook for 2015?
There is a feeling that the pressures facing mining companies will conspire to force a rash of deal making in the coming year and that the weight of private equity cash remaining to be deployed will support this. At the same time, many expressed concern that one of the biggest barriers to this activity is that management at some companies may remain reluctant to deal if it means dealing themselves out of a job in a market where their own returns may be limited.
Macro trends will remain key and large rises in certain commodity prices during the year could also be a major catalyst for activity.