Capital-starved mining sector creates 'buyer's market' for investors
Specialist mining investors have found a "buyer's market" for projects as the mining sector struggles to compete for funding with new industries, multiple industry executives said at a conference this week.
Smaller mines and developers who previously found capital through retail investors in public markets are increasingly turning to specialist investors such as private equity or companies that seek returns in mining royalties, the executives said.
Mines need to replenish their supplies and expand while developers are desperate for funding to better quantify what they have found underground.
"In terms of the capital markets, particularly for exploration, if it's not blockchain, crypto-currency or marijuana, then it doesn't get a run," said Owen Hegarty, executive chairman of EMR Capital, a private equity fund that specialises in the mining sector.
Julian Treger, chief executive of Anglo Pacific Group which invests in mining companies to secure access to royalties, said generalist investors' shift into new trends such as crypto investing and medical marijuana has given more specialized investors leeway to pick projects.
"We have seen 300 projects this year and we have done two. It's a buyers' market," he said.
Mines need to replenish their supplies and expand while developers are desperate for funding to better quantify what they have found underground
Anglo Pacific will have $150 million in unused debt facilities and cash on hand by the end of 2019 for further investments, said Treger.
Global private equity fund Denham Capital, which has just closed a $560 million mining fund, could invest in three times the number of projects its funds would allow, said Managing Director Bert Koth.
"I know from my own fund raising that the pool of available capital in the mining industry has shrunk by about 70 percent compared to five, six, seven years ago," Koth said, referring to the drop in retail and institutional investments in mining.
Some of the capital scared away by disastrous top-of-the-cycle investments and the subsequent crash in prices would likely never return, he said.
"I think the industry is going to remain severely capital constrained. Maybe that is a good thing, maybe it means that capital will make less mistakes," said Koth.
Don Lindsay, chief executive of Canadian miner Teck Resources, said investors do not see good returns in mining anymore.
"A core reason is the fear of volatility. We are seeing cycles now where the highs are higher and the lows are lower," he said, leaving investors unsure how to value miners.
Another portfolio manager at a global private equity fund said it had a "healthy deal flow" and would have no problem filling its allocations.
"Private equity is critical to the junior mining industry because we are providing capital at a time when no-one else is," he said. "Just look at the number of private equity funds focused on mining that are around now and that shows you there is a need."
(Reporting by Melanie Burton; editing by Richard Pullin and Christian Schmollinger)