Mining: Buried but Not Forgotten?

Equities valuations for Australia’s largest miners came off the boil, as did commodity prices, and the Chinese economy did not grow as strongly.


12 March 2014

Mining: Buried but Not Forgotten? www.dealcloserblog.com

For some time now, the media has been suggesting that the mining boom is over, but is that really the case, or are we just moving into a different growth phase for the resources sector?

Certainly, 2013 was a challenging year for resources and commodities. Equities valuations for Australia’s largest miners came off the boil, as did commodity prices, and the Chinese economy did not grow as strongly as it has in previous years. This caused some commentators to predict the end of the mining boom. Yet, others believe the sector is simply moving into a different stage of growth.

Jon Cane, principal of the law firm Allion Legal, is among those who hold the latter opinion. “We don’t believe the mining and resources boom is over. It has been a subdued market for the last year or two. There has been little appetite for capital raisings. The banks have stopped lending into the sector. Some marginal assets have also been put on hold because of commodity prices pressure. But with the general IPO market coming back, sentiment is improving,” he explains.

As evidence, Cane points to a number of secondary raisings that have recently been done in the resources sector, as well as the re-emergence of activity in the mid-market.

“We think we’re not too far off the IPO market coming back in the mid-cap resources space,” he says.

One of the factors driving activity, according to Cane, is not just the economic strength of China, but also the opening up of the Asian region as a whole.

“China is still strong, but we’re seeing in the Asian region as a whole a huge appetite for resources. There’s a lot more activity happening in areas we haven’t seen before. We’ve been hearing about assets in places like Mongolia and Myanmar and those are areas that haven’t been available in the past,” he points out.

What’s interesting, says Cane, is the keen interest among private equity investors for resources assets: private equity funds have recently invested in assets in Australia and in Australian companies with offshore assets. For instance, one of Cane’s Australian clients with assets in the UK has recently received an investment from a Hong Kong-based private equity company.

“So we are seeing those specialised mining funds that you get overseas, certainly in the UK and US, looking to invest in Australia,” Cane says.

Mining is going wider if not deeper, according to Cane. Do you agree and have you seen evidence of activity in more unusual parts of the globe?