Boom in private debt financing for mining

A study of private capital in the resources sector by industry tracker Preqin finds significant growth since the global financial crisis in the debt fundraising market with 54 funds closed since 2010 raising more than $29bn.

According to Preqin which tracks 1,520 funds active in natural resources investment around the world, at the moment there are 32 unlisted natural resources funds in the market that will invest in debt. Collectively, these funds are targeting an aggregate $23.2bn. This figure includes 19 funds focused on making debt investments in energy assets including oil, gas, coal and renewables, targeting $14.5bn.

Investments will primarily be funnelled into in North America. The authors of the report say that's because the region has a longer tradition of private ownership of natural resources assets than many other areas.

With regulation still affecting the ability of banks to address all the financing needs of natural resources companies, the next commodity boom will likely be financed, to an extent, by private capital

Only $700 million of the total raised is destined for debt financing in mining and metals as a primary focus although a chunk of the money flowing into energy markets will go towards coal. One of the biggest resources deals completed deal last year was a $1.1 billion coal-fired power plant in Zimbabwe. Funds with a diversified strategy may also channel some money into mining.

Currently there are only two unlisted metals and mining funds in market planning to invest in debt, both targeting approximately $400m in institutional investor capital – "perhaps partly due to concerns among investors and fund managers that the slump in the value of metals and minerals may be considerably longer lasting than that of energy" according to the report by the London-HQed firm.

"Nevertheless, among fund managers with the requisite expertise, the particular financing needs of mining companies may create attractive opportunities," says Preqin.

The report highlights Australia's Taurus Fund Management which closed its Mining Finance Fund in September last year. The Sydney-based investment company raised $683m to invest in the debt of global emerging public and private metals & mining companies for financing or refinancing, mining project development, expansion or acquisitions.

Tom Carr, Head of Real Assets Products at Preqin says “under pressure from increased regulation and capital requirements since the financial crisis, many banks have looked to deleverage and reduce their lending, creating more and more opportunities for fund managers to provide a range of financing options to natural resources companies":

"The continued growth of interest in debt investment in these companies will depend on the success or otherwise of the current group of funds and also on the direction commodity prices take. However, with regulation still affecting the ability of banks to address all the financing needs of natural resources companies, the next commodity boom will likely be financed, to an extent, by private capital.”

RELATED: $7B dry-powder for mining