Mining: Nature, M&A And Private Equity's Opportunities

The thesis explores the status quo and features of mining's development in view of mining's nature, merger and acquisition (M&A) in mining and metals sector and opportunities for private equity investment in mining. Mining circle projected into prices is changeable, five factors complex its behavior, which are lag of new supply, capacity expantion, demand styles of other circle industry, properties of comodities exchange market and influence of hedge fund. The perception of mining circle undervalued the future of the industry and had an influence on mining companies' operations. The mining and metals sector is renowned for its risk taking, which provides both challenges and opportunities, we have rated 15 strategic business risks facing mining and metalscompanies, of which 10 risks are commented and some thoughts on responding to these challenges are profiled.Drivers of M&A in the mining and metals sector are: (1) Higher commodity prices; (2) Role of resource security; (3) Increases in global demand for resources; (4) Economies of scale and greater marketing muscle; (5) Higher level of private equity; (6) Emergence of sovereign wealth funds; (7) A matter of survival !a meal or deal; (8) Diversification of risk.Opportunities for private equity to acquire mining companies include: (1) private equity with large amount funds would seek out strong companies. Mining companies are currently highly profitable with further upside potential if the current metal prices are sustained longer than investors in the industry anticipate; (2 ) ability to hedge future production revenues to lock in future cash flows, which can be used to repay debt obligations incurred as a result of increased leverage in the business or to distribute future profits to investors. A downside to this will influence a significant number of investors in mining companies and thus private equity may gain additional profit in a takeover attempt. Strengths of investment mining that are of interest to private equity include: (1) higher demand than supply is likely to keep prices buoyant - possibly beyond a private equity exit period; (2) high prices are creating predictable and secure cash flows for mining companies; (3) consolidation and greater management astuteness is leading to pricing control; (4 )corporate structures of mining companies drive high costs;(5)more exit opportunities, including IPO. Many examples of private equity invesntment in mining industry are presented, it means that mining and metal sector are becoming more attractive to PE.