[miningmx.com] – TWO of the world’s most powerful mining bosses have cast doubt on the ability of newly founded private equity to stay the course in the world of mining investments saying there would be difficulties serving debt in down cycles.
In an article by Reuters, Ivan Glasenberg, CEO of Glencore Xstrata, and Anglo American CEO, Mark Cutifani, noted the increased interest in mining by private equity groups, some led by former mining executives.
“Now there are a lot of private equity guys starting companies, a lot of guys who left the industry and started private equity groups. It’s never worked in the past,” Glasenberg told Reuters at the FT Commodities Summit.
One such person who ‘left the industry’ is Mick Davis, the former founder and CEO of Xstrata who made way for Glasenberg following a merger that resulted in the high profile creation of GlencoreXstrata.
“The problem with the commodities space if you have a high gearing is that you are not running Boots pharmaceutical where you have a pretty constant earnings base,” Glasenberg said.
“(In mining) you just don’t know your earning base. When you hit bad times, like we did recently, it goes down (quickly). How are you going to feed your debt?”
Cutifani said there was a huge amount of risk with mining investment which for private equity firms was like making “pointed bets”.
“At the end of the day (private equity firms) will be making pointed bets. There is still a lot of risk associated with those bets,” Cutifani told Reuters. “The assets that are being sold are probably not the best assets in the portfolio,” he said.
“You are taking narrow bets on potentially difficult commodities. You have to be very good to be successful. And into this market that is a bit choppy, it gets a lot tougher,” said Cutifani.
