MELBOURNE/JAKARTA (Reuters) - A shake-out from sliding iron ore and coal prices has touched off a spate of asset sales as tough times spread from Australia to Indonesia and could boost deal activity in what has been a lean year in the mining sector.
Cashed up Japanese, Korean and Chinese buyers are waiting in the wings to snap up bargains, particularly in the coal sector, investment bankers and lawyers said.
"Overall, what we're seeing is smart money is coming into the coal sector now because they believe the bottom has been hit," said Roger Suyama, head of Indonesia corporate and investment coverage at VTB Capital in Singapore.
Asia-Pacific mining deals so far this year total $47.6 billion, down 23 percent from a year earlier, Thomson Reuters data shows.
However, activity has picked up in recent weeks, led by a $960 million bid by Thai state-controlled energy company PTT (PTT.BK) to privatize coal miner Sakari Resources SAKR.SI.
Coal, which meets more than half of Asia's fuel needs, is attracting interest in particular, investment bankers said. Asian countries, led by China and India, need supplies to meet growing power demand.
"We believe North Asia outbound M&A for resources assets will continue to focus on significant minority stake acquisitions coupled with long-term off-take agreements and governance," said Mayooran Elalingham, Deutsche Bank's Asia head of general industries mergers and acquisitions in Hong Kong.
"Such acquisitions will be driven by Chinese, Japanese and Korean steel companies and trading houses, based on achieving national goals of long-term security of supply of natural resources."
Although advisers expect a pick up in activity, they doubt any big deals are in the pipeline.
A murky near-term outlook for global growth and commodity prices would make it tough for suitors to line up funding for big takeovers. Buyers and sellers are also far apart on price expectations, they said.
But deal advisers said they expected a pick-up in acquisitions involving minority stakes worth up to around $500 million to $600 million.
Smaller stake sales would at least help set the bar for valuation multiples for bigger asset sales or takeovers down the track, a mining banker in Hong Kong said, declining to be named as he was not authorized to speak to the media.
"There will be opportunities for North Asia players to invest in iron ore and coal assets in Indonesia and Australia and the approaches are more likely to be stake acquisitions," said Paul Donnelly, head of investment banking in mining and metals for Southeast Asia at J.P. Morgan in Hong Kong.
"The current valuation isn't attractive enough for owners to sell a controlling stake, but there's a need to obtain incremental capital to improve and develop their assets."
Chinese companies are on the prowl in Australia, Indonesia and Canada for beaten down assets, several advisers said, although the country's leadership transition and uncertainty over the outlook for infrastructure growth were holding some companies back.
"Domestic political change at home is making Chinese investors more cautious. So they're looking for smaller acquisitions," said Perth-based Adam Handley, a partner and co-chair of the China Interest Group at law firm Minter Ellison.
In a change of strategy, Chinese firms are less likely now to seek controlling stakes, he said, after running into delays and cost overruns on big iron ore projects they own in Australia, such as on CITIC Pacific's (0267.HK) $8 billion Sino Iron mine.
Lawyers said Chinese companies were particularly interested in coal assets in Indonesia, but are likely to run into competition, including from Russian steel major Severstal (CHMF.MM) and U.S.-based coal investor PHI Group Inc (PHIL.PK).
Assets on the block in Indonesia include a 20 percent stake in PT Asmin Koalindo Tuhup, the coking coal arm of Borneo Lumbung Energi & Metals (BORN.JK), in a deal that could be worth $500 million.
South Korean steel maker POSCO (005490.KS) and others are already in talks with PT Borneo, which aims to reduce $1 billion in debt incurred last year when it bought a stake in London-listed Bumi Plc BUMIP.L.
"If the price is attractive enough there is money out there ready to swoop in and buy some of the assets," said Marius Toime, a Singapore-based partner at law firm Berwin Leighton Paisner.
Mid-sized coal miner Toba Bara Sejahtera (TOBA.JK) is aiming to sell a 20-30 percent stake to a strategic partner to help fund long-term expansion, bankers involved in the sale say.
Toba Sejahtera group, the parent company of Toba Sera, declined to comment.
MEC Holdings, a Dubai-based resources firm, is looking to sell a coal concession in Kalimantan, Indonesia and a coal railway license, as it is struggling to line up financing and secure land, rivals who have seen the offer said. MEC declined to comment.
Companies looking at Indonesia have been unfazed by changes in the country's mining law and foreign ownership restrictions and a pending ban on unprocessed minerals, said Deutsche Bank's Elalingham.
Australian companies, from mining giant BHP Billiton (BHP.AX) (BLT.L) to emerging iron ore producers, are all in lock-down mode. They have shelved projects and cut output at high-cost mines to weather the downturn in iron ore and coal prices, and are considering asset sales.
While iron ore prices have recovered from a low of $86 a metric ton hit earlier in September, they remain 27 percent below this year's high of around $150. That leaves miners who sell only iron ore, like world no.4 iron ore miner Fortescue Metals Group (FMG.AX), particularly vulnerable.
Fortescue said this week it was in talks to sell some non-core assets, including its Iron Bridge magnetite stake, after it managed to line up $4.5 billion in debt that gave it three years of breathing room on repayments.
It is also willing to consider bids for stakes in its rail and port assets and its undeveloped mines. They are likely to attract interest from Chinese firms and the likes of coal transporters QR National QRN.AX and Asciano (AIO.AX), deal advisers said.
"Slowly but surely, deals will get done, though at the smaller end of the spectrum.... But it's way too uncertain for big mining M&A to happen right now," said the unidentified Hong Kong-based mining banker.
(Additional reporting by Janeman Latul in JAKARTA, Saeed Azhar in SINGAPORE, and Khettiya Jittapong in BANGKOK; Editing by Neil Fullick)