State-backed investors and private capital funds were cashing in on low commodity prices, advisory firm Ernst & Young (E&Y) said last week, adding that the nontraditional investors were increasingly targeting resources in an attempt to capture upside once confidence returned.

E&Y global mining and metals transaction leader Lee Downham stated that the capital funds could afford to hold an asset until the cycle returned.

“But if your investment horizon is short, as many public shareholders’ are, then the decision to invest the capital is not straightforward,” he noted.

Downham added that Asian State-owned enterprises were expected to remain strong contenders for mining and metals assets of strategic interest.

E&Y reported last week that merger and acquisition and capital raising activity by mining and metals companies remained subdued in the first half of the year, pointing to the third consecutive year of declining deal volumes.

During the first half of 2013, there were 350 deals worth $78.6-billion, with deal volume down 30%, compared with the corresponding period in 2012.

Deal value was up 41%, primarily owing to the $37.8-billion Glencore International/Xstrata merger and the $5.1-billion acquisition of Inmet Mining Corporation by First Quantum Minerals.

For the first half of 2013, ten mega deals accounted for 80% of overall deal value. In contrast, in the first half of 2012, 12 mega deals accounted for just 30% of overall deal value for the period.

Downham noted that low valuations, divestitures and cash-strapped juniors have set the stage for a buyer’s market. However, he added that mining and metals companies remained cautious about investing capital.

“A sign of sustained improvement in commodity prices may be needed to trigger an increase in competitive buying activity of the many divested assets coming to market,” he said.

“We are hopeful that this is the bottom of the cycle for capital raising. There is a sense that companies are beginning to think about going back to equity markets and we are beginning to see companies preparing for initial public offerings when the market returns.”

Overall capital raising for the sector in the first half of 2013 was $157-billion from 1 191 issues.