Mining assets have been out of favor in 2014 as investors turn to financial assets and dump the real assets locked in the ground.
The malaise has even spread into the mergers and acquisitions (M&A) arena. Mining M&A activity dipped by 69% in the first half of 2014, according to Ernst & Young.
The deals were smallish, too… with nine out of 10 under $50 million.
But there’s a lot of money – about $10 billion – waiting on the sidelines and ready to pounce at the right moment.
It’s all private equity money headed by some of the best and savviest minds in the mining industry.
These savvy investors are likely to direct their investments all in one direction, making it easy for the average investor to go along for the profitable ride.
Ready for the Gun
Familiar private equity names including Apollo Global Management (APO) and Brookfield Capital Partners, part of Brookfield Asset Management (BAM), have set up specialty funds to invest into the sector.
But the people you should watch closely are those that have set up funds to buy mining assets.
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But there’s one name that stands above all the rest…
Mick Davis, the person that put together two of the world’s most significant mining companies over the past two decades – Billiton and Xstrata.
Now he’s on the prowl with nearly $5 billion of equity (and access to debt financing) in his investment vehicle, X2 Resources. Today, the question in mining circles is: “What will Mick buy?”
Before BHP announced its plan to spin off its unwanted Billiton assets, Davis approached them with an offer, but he was rebuffed.
When the spinoff occurs, and the shares are publicly traded, Davis will probably make an offer for assets he is very familiar with. Investors take should take note.
If that fails, he may look at the unwanted assets of Anglo American. Being a native of the country, Davis is very familiar with working with mining assets located in South Africa.
Right now, the mining industry is focused on the very short term. Streamlining, cost-cutting, and maximizing profits for the shareholders are the buzzwords of the day.
But mining is, by its nature, a long-term game. Mick Davis understands this.
Davis has a history of buying second-tier assets and building them into a world-class mining company.
Look for him to do it again with some other companies’ unwanted orphan assets.
And “the chase” continues,