Source: ResCap                        Date: 31 March, 2011

When does the capital raising environment of smart and brave entrepreneurs seeking growth for building new mines and businesses simply turn to M&A (mergers & acquisitions)? Evidence is already surfacing of the early start of that potential M&A period. Two weeks ago, Thai coal giant Banpu made a USD45 million investment into Hunnu Coal (USD358 million market cap) for 12% of the company as a “means of getting a foothold in Mongolia”. Is it simply averaging into the stock at what will be seen as a great entry price in a potential future take-out?

Aspire Mining’s (USD466 million) fate may already be sealed following a second investment by Noble Group giving it a 9% stake, with SouthGobi already holding an initial 20% from last year (and seeing a very handsome 600% return in the process). Xanadu Mines’ (USD100 million) largest shareholder is Noble at 10%. Entrée Gold (USD350 million) boasts Rio Tinto and Ivanhoe as shareholders controlling 13% and 12% of the shares, respectively. Then there is Ivanhoe (USD17 billion) who will have Rio Tinto at just below 50% interest by sometime in 2012.

Where one can’t build fast enough from the ground up, buying may be just as easy (and profitable) if commodities are truly in the super-cycle and headed higher. For the unlucky 5 out of 6 mining giants that are unsuccessful with the Tavan Tolgoi bidding process, M&A is potentially the next obvious step. Fortescue, Vale, Xstrata and Arcelor Mittal have all shown interest in Mongolia but have yet to make their entry point in earnest.

While the capital raising activities continue, it feels like 2012 may just be the start of Fairness Opinions and Take-Over bids in Mongolia.