Mine Sales in Bear Market Brings Private Equity on Prowl

Mining companies led by BHP Billiton Ltd. (BHP) are holding the biggest ever sale of assets this year just as commodity prices head into a bear market. What’s bad timing for the miners might be the opposite for private equity.

About $48 billion of mines and assets are on the block, almost double last year’s $23 billion of completed and pending deals, according to data compiled by Bloomberg.

“I haven’t seen anything like it in more than 20 years,” said Tim Schroeders, who helps manage about $1 billion in equities, including BHP and Rio Tinto (RIO) Group, at Pengana Capital Ltd. in Melbourne. “Mining companies have done pretty well buying assets at the bottom of the cycle and turning some over near the top, but this is completely the other way around.”

BHP, the world’s biggest mining company, and London-based Rio Tinto are leading the global asset disposal and may sell businesses or stakes in mines for as much as $35 billion, according to Deutsche Bank AG. Private-equity firms are finding that tempting, raising almost $9 billion in 16 months for mine investment, more than the previous four years combined, according to data compiled by Bloomberg.

Aaron Regent, who was fired last year as chief executive officer of Barrick Gold Corp. (ABX), the biggest producer of the metal, started a company to invest in mining assets, according to two people familiar with the matter. KKR & Co. (KKR), the firm run by Henry Kravis and George Roberts, is considering a bid for Rio’s stake in an Australian copper and gold mine, two people with knowledge of the matter said last month.

Photographer: Carla Gottgens/Bloomberg

BHP Billiton Ltd. may sell stakes worth as much as $25 billion in coal mines and oil and gas fields from Algeria to the U.S., Deutsche Bank said in a March 11 report. Close

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Photographer: Carla Gottgens/Bloomberg

BHP Billiton Ltd. may sell stakes worth as much as $25 billion in coal mines and oil and gas fields from Algeria to the U.S., Deutsche Bank said in a March 11 report.

Steve Okun, a spokesman for KKR in Hong Kong, said the firm doesn’t comment on market speculation.

‘Financial Firepower’

Richard Barker, Sydney-based co-head of metals and mining in Australia at RBC Capital Markets, sees private equity ready to step up acquisitions.

“When you think of the financial firepower of the resource-focused private equity firms, they can put a lot of money into transactions,” Barker said at a May 1 media briefing. “Private equity is going to be the solution to funding many of these projects.”

Former Xstrata Plc CEO Mick Davis and Chief Financial Officer Trevor Reid are weighing plans to set up a privately backed mining fund, people familiar with the matter said last month.

Bankers led by Lloyd Pengilly, previously at JPMorgan Chase & Co. (JPM), are setting up a London-based fund to invest mainly in African mining. Denham Capital Management LP, a $7.3 billion U.S. private equity fund focused on mining and energy, said in February it aims to sign a deal for as much as $300 million in Australia, the biggest exporter of iron ore and coal.

On the Block

BHP may sell stakes worth as much as $25 billion in coal mines and oil and gas fields from Algeria to the U.S., Deutsche Bank said in a March 11 report. Rio, the world’s second-biggest miner, could offload as much as $10 billion, the bank said.

That’s as commodity prices as measured by the S&P GSCI (SPGSCI) had their worst month in almost a year in April on concern the slowdown in China’s growth will curtail demand.

Much more is on the block. Glencore Xstrata Plc (GLEN) is among companies selling or halting projects to cut debt and boost dividends, Deutsche Bank said in the report. The world’s largest commodities trader is selling the Las Bambas copper project in Peru, valued at $6.5 billion by BMO Capital Markets, to gain clearance from China for its $29 billion takeover of Xstrata Plc. A spokesman for the Baar, Switzerland-based company declined to comment.

The sales follow a decade-long takeover binge of more than $1.1 trillion by resources companies, which led to more than $60 billion in asset writedowns.

Albanese Not

The shift to an offload strategy includes boardroom exits, such as the chief executive officers of Melbourne-based BHP and Rio this year. Andrew Mackenzie, who takes up the BHP CEO job on May 10, joins the new Rio CEO Sam Walsh in clearing the decks of underperforming assets.

After Walsh took charge of London-based Rio in January, he made it clear cutting costs and conserving capital is his focus. The man he replaced, Tom Albanese, left after overseeing acquisitions that led to $14 billion in writedowns.

“We’re targeting cash proceeds from divestments, and are reviewing a number of potential non-core assets for divestment,” Walsh said today at Rio’s annual meeting in Sydney.

Done Deals

Still, some deals are getting done. BHP last month sold the Pinto Valley copper mine in the U.S. for $650 million to Canada’s Capstone Mining Corp. (CS) That took Melbourne-based BHP’s total asset sales in the past year to $5 billion, it said April 29, including a Canadian diamond mine, an Australian uranium project and a stake in a gas field in the Browse basin.

“Consistent with our commitment to simplify the portfolio, BHP Billiton continues to selectively pursue asset divestment opportunities, with a firm focus on value,” BHP said in an e-mail. “Our recent Pinto Valley announcement is an example.”

AngloGold Ashanti Ltd. (ANG), the world’s third-largest producer of the precious metal, said last month that it has a shortlist of bidders for its Navachab mine in northwestern Namibia.

“The number of deals in a falling price environment can go up because they either have to reduce costs or find synergies by combining with other projects,” said Peter Bacchus, global head of natural resources at Jefferies Inc.

‘No Buyers’

BHP has 10 sales under way, according to a UBS AG (UBSN) report, citing Chief Financial Officer Graham Kerr. Aluminum and stainless steel are “non-core” businesses, Kerr said at a meeting in March, according to UBS.

Kerr said there were no buyers for some assets, while petroleum operations were the easiest to sell, according to a JPMorgan report of the same meeting.

Even in China, the world’s biggest buyer of minerals, acquisitions slowed to $2.2 billion in the first quarter, the lowest since the third quarter of 2008, according to data compiled by Bloomberg.

“China is not as active as they were,” said Campbell Stewart, head of natural resources at UBS in Melbourne. “Some companies are struggling with profitability or have made acquisitions that have not worked out, which reduces their ability to do further M&A.”

To contact the reporters on this story: Brett Foley in Melbourne at bfoley8@bloomberg.net; Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net

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