Much is made of the levels of dry power that are present within private equity (PE) firms, particularly in terms of when this needs to be spent and how pressured PE firms are to get deals done. Levels of dry powder within the industry have generally increased since 2008 as firms have looked for safer investments and become more risk averse.
However, the time between then and now means that many firms are reaching points where they need to act, either by returning funds to investors or investing them. Naturally, many are looking to do the latter, as any non-invested funds can have a serious negative effect on the reputation of a PE group.
Bloomberg reported on Monday February 3 that the mining industry could well be a target for much of this dry powder. While mergers and acquisition (M&A) focussed firms have been targeting the mining industry over the past two years, less than $2billion of a reported total of $10billion has been spent to date.
Although the mining industry remains a lucrative investment proposition, the reason many firms have kept their powder dry is because the value of assets related to the mining industry are falling. It is believed, as reported in the same Bloomberg article, that the value of these is about to hit the bottom, meaning M&A firms will be placed to invest their funds with an eye towards making the largest possible profits when the time comes to cash in.
It is unclear whether firms that already hold mining assets will look to fully merge their newly secured operations and assets or would be willing to simply hold onto them in order to sell when the market price improves.
Many of the biggest mining opportunities are likely to be found in emerging markets, with various countries in South America and Asia already home to potentially high value projects, including a Peru copper project with assets valued at $4.5billion. The movement of M&A firms into the mining market is likely to combine picking up the full operations and assets of smaller mining companies as well as projects and any equipment that global industry giants deem it no longer cost effective to maintain and operate.