Private-equity interest in mining companies has waned, leaving a handful of players to pick through the debris.
For two years, private equity was all the rage as the mining industry got hit hard by the plummeting commodity prices. Traditional private-equity firms were looking for distressed assets. Bankers and others tried to establish private-equity shops.
But today, many of the big funds have not made mining investments and others have simply given up.
"They thought they could be passive financial investors, raise some capital, put it in some companies. But it is very difficult to find something where you can actually make money," said Isser Elishis, chief investment officer with Waterton Global Resource Management.
Globally, private-equity mining deals have slipped. Last year, the private pools of capital were involved in 66 deals worth $5-billion, compared with 83 transactions worth $6.7-billion in 2010, according to data compiled by Thomson Reuters.
In Canada, private equity was involved in 34 mining deals in 2014, roughly the same as in 2010 when commodity prices were climbing, according to the Thomson Reuters data.
Small mining companies, which have come to Toronto for the annual Prospectors and Developers Association of Canada conference, had been hoping private equity would help provide much needed capital.
But that has not happened.
The reality is that the traditional private-equity "buyout" model of buying a distressed company, fixing it and then selling it over a short period of time is harder to pull off in mining, which has a much longer time frame to develop projects.
"About two years ago, everyone was there trying to figure out the best way to play the space," said Michael Scherb, general partner with London-based Appian Capital Advisory LLP.
But Mr. Scherb said it is impossible for traditional private-equity firms to quantify the multitude of risks associated with mining, from permit approvals to commodity prices.
"They are curious about mining, they will sniff around because they see some value, but they are not sure how to unlock it," he said.
So far, Appian's $375-million (U.S.) fund has made four mining investments and Waterton's $1-billion fund has invested in 14 gold and copper companies.
Another source of excitement in private equity came from former Xstrata chief executive Mick Davis, who has raised more than $3-billion in private capital.
But Mr. Davis has yet to deploy any of his funds and is seeking big mining assets to help build another mini version of Xstrata, the mining giant now part of Glencore PLC.
Nevertheless, there is a bright spot in private equity.
In the fourth year of the downturn, the climate has changed as some mining companies realize they need to bend on deal terms and meet private-equity firms halfway.
Former Barrick CEO Aaron Regent recently bought Iamgold Corp.'s niobium mine and rare earth deposit for $530-million in cash. But that acquisition came two years after Mr. Regent first contacted Iamgold and told the company he was interested in the niobium mine. Initially, Iamgold was not ready to sell. After bullion continued to fall, however, Iamgold realized it had to improve its portfolio and decided to sell the mine.
Mr. Regent, who is running his own private-equity firm, Magris Resources, said the market for buyers is better today as companies are under enormous pressure to raise capital to improve their balance sheets.
"It means they are more willing to transact today than two years ago," he said.