Private equity shows little appetite for speciality minerals

By Myles McCormick
Published: Monday, 03 August 2015

As an alternative source of finance for mining and exploration companies, private equity investment continues to strongly support mainstream metals. Its interest in speciality industrial minerals remains low, however.

Investment by private equity (PE) firms in the mining industry has seen a major increase in H1 2015, but this interest is restricted to the major commodities, leaving speciality industrial minerals to continue to rely on capital markets.

The first half of the year saw 61 reported PE investments into the mining industry, up from 50 in the whole of 2014, according to a report by Berwin Leighton Paisner (BLP).

 Piggy bank_OTA Photos
PE investors have shown little appetite for industrial minerals projects in 2015 (source: OTA Pictures). 

H1 2015 investments totalled $1.76bn, versus $2bn in the whole of the previous year, the report, entitled "Private Equity in Mining: H1 2015" stated.

Of the investments made this year, gold remains the most popular commodity. At 29 instances, it represents almost half of all PE investments made.

Copper and nickel also feature prominently, with eight and six PE injections made in these areas, respectively.

Alexander Keepin, lead author of the report and co-head of mining at BLP, told IM that, from a PE point of view, speciality minerals remain "less popular" than their mainstream counterparts.

Vanadium and niobium are the only two speciality minerals which have successfully piqued the interest of PE investors so far this year, according to Keepin – a similar figure to 2014.

TSX-V-listed vanadium producer, Largo Resources Ltd, received Canadian dollar (C$) 75.2m ($57.4m*) via private placement funding in May, with the majority coming from US private equity firm, Arias Resource Capital Management.

The funds received via this deal are to be put towards the ramp up in production of Largo’s Vanadio de Maracas Menchen vanadium mine in Bahia state, Brazil, where it has an initial production of 11,400 tpa vanadium pentoxide (V2O5) equivalent.

The niobium deal came in the form of PE-backed Magris Resources Inc., acquiring Iamgold Corp.’s niobium mine in Quebec, Canada – one of just three in the world – for $530m cash.

Vanadium is used principally in the form of V 2O 5 as a steel additive, a use which accounts for 90% of the market and Largo has the benefit of an offtake agreement with trading giant Glencore to supply this industry. The mineral also has a small but growing market in the vanadium redox battery (VRB) industry. Steel manufacturing has been slowing lately, while VRBs are still in their infancy.

Niobium (also known as columbium) is used in the form of ferroniobium as an alloying element in steels and in superalloys. It is also used in the forms of high-purity ferroniobium and nickel niobium, which feature in nickel-, cobalt-, and iron-base superalloys for such applications as jet engine components, rocket subassemblies, and heat-resisting and combustion equipment, according to the US Geological Survey (USGS).

Geographically, Europe accounted for the lion’s share of PE investment in the mining industry in H1 2015. BLP reported four deals within the continent, accounting for $1bn.

North America accounted for the majority of deals made – 12 in Canada and 11 in the US. However, their sum total was just $282.9m.

51% of deals had involved stake increases, up from 44% in 2014. BLP said that this may be indicative of the "general difficulties faced by mining companies in the sector with low commodity prices".

Further illustrating issues faced by companies in the period, one in every six deals involved refinancing or rescue.

In relation to the trend at large, Keepin said: "The data shows that even with the commodity market in flux, the momentum which began in 2014 has continued into the first half of 2015."

"If the trends we have seen continue throughout the rest of the year then we will see nearly double the amount invested in 2015 compared to 2014."

*Conversions made July 2015

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