Private equity pours more money into coal

LONDON: Private equity deals in the mining industry poured more money into coal last year than traditional favourites such as copper, gold and battery materials combined.

The jump in coal money shows that however dirty and unloved it may be, the fuel remains a cash cow.

While prices for base metals from copper to zinc sank in the last year and even cobalt and lithium took a tumble, coal held its ground, supported by strong demand from China.

As some miners divested coal assets, private equity took the chance to snap them up.

Coal accounted for more than half of all private equity spending on mining last year, according to law firm Bryan Cave Leighton Paisner’s (BCLP) annual report on the industry.

A single big deal in Australia – when EMR Capital Advisors bought a stake in Rio Tinto Group’s Kestrel coal operation – helped drive investments to US$1.2bil. That compared with US$531mil for gold and just US$202mil for copper.

“It is interesting to see coal so dominant in terms of funds invested,” BCLP’s head of mining, Alexander Keepin, said in the report. “Investors see value notwithstanding the political pressures.”

Battery metals, which attracted US$175mil in 2017, fared worse last year. “Notwithstanding the general excitement around battery metals, they only saw US$28.5mil of equity investments,” Keepin said.

The total value of private equity deals in the mining sector slipped to US$2bil last year from US$2.3bil a year earlier.

It was less than two-thirds the value of deals in 2015, a year when private equity poured US$3.2bil into the industry as some of the biggest companies were forced to shed assets amid a collapse in commodity prices.

BCLP sees a resurgence of deals this year, with the traditionally favoured commodities gold and copper becoming dominant once again.

The law firm also flagged that a raft of deals from earlier this decade are now coming to a point where investors look for returns, spurring activity.

“The next two years will represent a tipping point for mining private equity,” said Keepin.

“The initial five years is coming to an end and these funds will start to focus on realising investments which may itself trigger further activity in the sector generally.” — Bloomberg