INTERNATIONAL. Sovereign wealth funds from the Middle East, and Japanese and Korean companies are seeking mining acquisitions and investments after asset values dropped, competing with Chinese companies, UBS said.
“This is the time to do that because asset values are low,” Paul Knight, managing director and joint global head of metals and mining with UBS, said today. “The Koreans are looking at acquisitions, and the Japanese to some extent.”
China last month agreed to invest US$22 billion in commodity producers including Rio Tinto Group as indebted companies seek funds after the global recession and credit crunch spurred a collapse in metal prices and lending. Sovereign wealth funds may be diversifying after losing more than US$60 billion since the onset of the credit crisis after investing in financial stocks.
There is a “significant increase” in interest in the mining industry from Middle Eastern investors, Ziad Kawash, Managing Director of Equity-i, said today in Singapore. “There are pools of capital in the region which do look at mining opportunities but they have to carry a strategic value back to the home country.”
Middle Eastern investors could be interested in aluminum, alumina, bauxite, iron ore, oil and gas, Kawash said.
Equity-i has advised on private equity deals over US$2 billion, according to its website. It has US$500 million under management, he said.
Temasek Holdings, the Singapore state-owned fund, this week said it will consider “opportunistic” mining investments to tap growth in emerging economies.
Kawash and Knight were attending a mining conference.
Paul Espie, Managing Director of Pacific Road Capital Management which manages the US$320 million Pacific Road Resources Fund, said his fund has received inquiries from wealth funds keen to invest, with one “actively pursuing” them. He didn’t name the fund.
Fortescue Metals Group, Australia’s third-largest iron ore exporter, said this week that investment talks are still continuing with China Investment Corp, the nation’s US$200 billion sovereign wealth fund.
Wealth funds aren’t “operators of mines, they tend to want an operator with them,” UBS’s Knight said in an interview. “But it is too early to tell exactly what their modus operandi is going to be. They are, as with private equity firms, going up the learning curve dealing with a cyclical industry.”
Chinese companies are also considering investing in Canada and Latin American countries including Peru and Chile because of the better infrastructure and low political risks, Knight said.
African countries like Congo, which has good copper resources, may be attractive over the “mid-term” he said.
The Reuters/Jefferies CRB Index, which tracks 19 raw materials, dropped 36% last year in the biggest annual decline since at least 1957.