PERTH (miningweekly.com) – The global resources industry was gearing up for a busy second half as far as merger and acquisition (M&A) activities were concerned, researcher SNL Metals reported on Friday.

Data from the researcher indicate that, in the first six months of the year, some 117 deals totalling $13.21- billion were announced, a 56% increase on the 75 deals worth around $11.47-billion announced in the same period of 2013.

SNL Metals noted that the gap between seller and buyer price expectations had delayed deals or even forced hostile takeovers in some instances. The researcher added that the consensus among industry watchers was that this would still remain an issue in the last half of 2014 and early 2015, perhaps even longer.

Pointing to research conducted by advisory firm EY, SNL noted that the much-anticipated influx of capital from new mining-focused private funds was taking longer than expected, but activity was slated to increase.

EY estimated that mining-focused private capital funds have amassed at least $10-billion, and possibly as high as $20-billion, to invest in the global metals and mining sector.

The firm's global mining and metals transactions leader, Lee Downham, was quoted as saying that M&A activity was likely to remain subdued for the rest of 2014 despite a strong deal pipeline, while a private capital funds war chest was yet to be unleashed.

“Deal-making in the sector continues to be cautious, partly due to the continuing commitment to capital discipline, but also due to a lack of urgency over investment given the lack of competition for assets,” Downham said.

“Some standout deals and hostile bids during the second quarter, combined with a strong deal pipeline and substantial capital waiting to be deployed by mining-focused funds, suggest that momentum is building."

SNL reported that a consensus existed that the cash being accumulated by mining-focused private capital funds was pent-up and there was a demand for private equity; however, the range of opportunities available to these types of investors was viewed as limited.

The researcher noted that industry experts believed that private capital funds were more inclined to seek out advanced assets in low-risk jurisdictions.

PwC Australia mining leader Jock O'Callaghan told SNL that private capital investors would likely have less of an appetite for investments in developing mining countries than other new investors and China would.

“I think geographically they will have more appetite for stable jurisdictions and that will be a pretty critical factor in their investments. There is also the issue of where in the asset life-cycle they would be prepared to put their money. I suspect that they will have much more difficulty investing their equity into projects that are not existing and producing mines,” O’Callaghan said.

EY’s Downham agreed that private capital buyers were most likely to steer clear of higher-risk asset buys.

“They typically won't do the high-risk deals in high-risk geographies because they don't necessarily have the strength of blue chip corporates behind them that gives them some protection. So, they will be a little bit more exposed to the very high-risk markets and, therefore, you may see them avoiding those.”

However, advanced assets, where there was a reasonably high degree of confidence in the resource that lies within the project, in low-risk locations, are a lot harder to come by and much more expensive.

Given the limited scope for private capital buyers, SNL stated that it was likely that the majority of merger and acquisition activity expected in the last half of 2014 and early 2015 would still be led by corporates.

However, it pointed out that O'Callaghan was not convinced that the market would be seeing a wave of deals being done by private capital buyers.

“I think we'll see it in a more episodic rather than thematic way when the conditions are just right for a private equity buyer," he said.

“Comparing it to other industries, it's not the sort of industry you can see will have a sizable portion of its ownership sitting in the hands of private equity."

EY anticipated M&A activity would start to pick up in the first half of 2015.

“We would hope to see deals being closed this year and increase in terms of regularity first half of next year, but you may find some that pull the trigger on a handful of deals very quickly and others that bide their time and take another year or so looking for the perfect deal," Downham said.

SNL noted that major diversified miners were continuing to consider divestments as a way of reducing debt, maximising returns on capital and optimizing their portfolios, though stronger balance sheets had taken the urgency out of these deals.

“We do, however, think divestments of noncore assets from the majors will pick up pace in the next six months,” Downham said.

“While these assets may not be strategic to the divesting companies, they are typically high-quality assets and will likely attract strong competition, particularly from private capital buyers.”

Downham’s comments come as BHP Billiton announced earlier this week that it was demerging its noncore assets, including aluminium, coal, manganese, nickel and silver business. These assets would be listed in an independent metals and mining company.