Aussie miners courting Asian private investors

Australian investors appear to be shunning their domestic mining industry, leaving the sector hoping that Asian firms – particularly private ones – will fill the gap.
Aussie miners courting Asian private investors

Australian mining firms worry that domestic retail and institutional investors have largely turned their backs on them, leaving Asian institutions to fill the void for funding the capital-hungry sector.

That was one finding of a survey at the Diggers & Dealers Mining Forum in Western Australia yesterday, conducted by MinesOnline, an online service for searching listed projects.

Chinese state-owned enterprises (SOEs) and other strategic investors have been responsible for most demand for Australian mining assets in recent years, but the slowdown in China's economy is curbing such deal flow.

Yet private firms are increasingly showing interest, says Liam Twigger, managing director of MinesOnline and its parent company, PCF Capital Group, a Perth-based investment banking and corporate advisory firm.

Indeed, PCF is setting up a China desk and bringing in a Mandarin speaker with a view to sourcing and building relationships with mainland investors. Twigger declined to identify the new hire because the individual has not yet joined the firm.

He cites as an example of the kind of deals increasingly being done a $40 million transaction in January between Hong Kong (International) Snowpeak Investment Company and Australian company Consolidated Tin Mines to form an Australian joint venture, Snow Peak Mining Company.

“We have seen substantial investment in Australian mining assets by large Chinese state-owned enterprises in the past decade,“ says Twigger. “However, in recent times this has started to slow.”

“The next wave of investment from China is likely to come from private equity groups and wealthy individuals seeking to diversify their portfolio beyond traditional asset classes such as property.

“Chinese property investors have made a fortune and are looking to diversify and get funds out of the mainland,” he adds.

This is something that Aussie miners will welcome, argues Twigger, as private investments raise fewer issues and sensitivities than sovereign-backed deals. For one thing, political concerns sparked by cross-border acquisitions of natural resource assets by SOEs are likely to hamper the progress and speed at which deals get done.

Moreover, private groups tend to be motivated by profit rather than any strategic concerns and are likely to have less experience of mining than SOEs. Hence the former are less likely to want to be involved in the running of acquiree companies, says Twigger: “They’re happy to let the Australian management get on with it.”

What’s more, SOEs tend to change their management teams fairly regularly – perhaps rotating senior officials or executives every year or two – so often the team that starts working on a deal is not the same one that finishes it, notes Twigger.

“When you’ve got a partnership deal, it can be very tough [for the mining company],” he adds. “You might have to justify everything once to one management team and then again to another before the deal is complete.”

The MinesOnline survey found that 70% of delegates believe Australian retail and institutional investors are the least interested groups in investing in local mining and exploration companies.

Some 43% of respondents to the survey – conducted by MinesOnline – said Asian strategic investors represent the most likely source of capital for Australia’s mining sector, with a further 23% identifying offshore institutional investors as the next most likely source.

Difficulty accessing capital was identified as the second most pressing issue currently facing Australia’s miners and improving productivity/reducing costs was highlighted as the primary focus, with the two issues achieving 36% and 38% of votes, respectively.

Asked whether they agreed with Australian prime minister Kevin Rudd’s assertion that “the China driven resources boom is over”, 51% of respondents said they somewhat disagreed with the comment and 9% strongly disagreed. One quarter of participants said they somewhat agreed.

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