Distressed asset buyers see silver lining as miners languish

Mon Mar 14, 2016 10:37pm EDT
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By Melanie Burton and Swati Pandey

MELBOURNE/SYDNEY (Reuters) - After years on the sidelines, funds specializing in troubled assets are set to take center stage in the mining industry, driving deals in a sector where the top players alone plan to raise more than $30 billion through sales to cut debt.

Overall deal volume in mining and metals last year sank to its lowest level globally since 2003, according to Thomson Reuters data, as the industry's sellers, crippled by more than $1 trillion in debt, crowded a market with very few buyers.

Bankers, funds and investors, however, say that could change in 2016, as specialist buyers rethink a market where prices are languishing, mines are losing money and the traditional competition is weak.

Funds sidelined and waiting for the right deals could amount to as much as $3 billion, according to a ballpark figure from corporate finance and restructuring firm FTI Consulting.

"The longer this commodity rout continues, the greater number of restructures," David McCarthy, national leader for restructuring at Deloitte in Sydney, told Reuters.

"Some of those will be by existing financiers and existing equity holders. For others, the risk will be too great - and that's where distressed opportunities will (be)."

Oaktree Capital, the world's largest investor in distressed debt, opened an office in Sydney this month, in part at least because of the strain in mining, it said, particularly iron ore, where it sees potential for deals.

Others are targeting existing mines where the geology has already been proven - and not development projects - for gold, copper, zinc and rare minerals, all exposed to the later stages of the economic cycle and renewable energy.   Continued...

A trackhoe digs in the South Limb pit at Atlas Iron's Pardoo mine, near Port Hedland, about 1,600 km (960 miles) north of Perth, in this June 23, 2010 file photo.  REUTERS/Tim Wimborne/Files