London - With the world's largest miners flocking to sell assets, cost cuts across the industry and a virtual drought in buyers, private equity funds may finally be tempted into a sector long seen as potentially lucrative but risky.
Industry veterans say the coming months will be a test of whether private equity funds can turn intentions into investments and become more than niche players in an industry that has traditionally relied on public markets for cash.
"Interest from private equity in the sector is the highest I have ever seen," one veteran industry banker said.
Another senior industry adviser described a "now or never" moment despite volatility in commodity prices, citing what could be a drawn out period of low valuations in which traditional buyers - largely, other miners - are kept out by demands they refocus and cut back rather than grow.
Volumes certainly point to increased interest.
According to research and data group Preqin which studies private equity, eight natural resources funds focused solely on mining raised an aggregate $8.5bn in 2012, more than the years 2006-2010 combined, though data did not show how much was spent on acquisitions.
Analysis by consultancy Ernst & Young suggests that private capital investors accounted for 21% of mining deal activity globally in the nine months to September 30 last year, against just 12% for the same period in 2011.
Smaller miners and developers are also eager to tap alternative sources for funding. In a sign of how tough the markets now are, the Toronto stock exchange - the prime destination for emerging producers - has not had one mining IPO in the first quarter, for the first time in a decade.
"There are a lot of buying opportunities, and for those who have the funds, you might find there is less competition, and that is what private equity looks for - a good deal," said Jason Burkitt, UK mining leader at PricewaterhouseCoopers.
Gold rush?
Private equity firms have so far steered clear of mining because of the scale and political risk involved in many operations.
Volatile commodity prices and long time horizons are also off-putting, not to mention that the investment firms often lack the manpower or expertise to cover global projects.
Typically, funds have stuck to niche assets, like high-end aluminium products for the aerospace and auto industry, in the case of Alcan Engineered Products, later Constellium, bought from Rio Tinto by funds led by Apollo in 2011.
Now, however, heavyweights like Apollo but also KKR and Carlyle are joining specialised energy-focused First Reserve, Denham Capital and Resource Capital in betting more heavily on the sector, drawn in by the prospect of an extended period of cheap prices and an unprecedented funding drought.
Apollo, which aims to invest $100m to $500m per transaction, closed a $1.3bn natural resources fund in 2012 which will invest in areas including oil, gas and mining.
The fund was one of several to look at BHP Billiton's majority stake in Canadian diamond mine EKATI, which also elicited interest from rival KKR before being sold to miner Dominion Diamond Corp.
KKR has also been named as a potential suitor for Rio's majority stake in the Northparkes copper-gold mine.
Smaller firms in pole position
However industry bankers and specialist funds both questioned whether big name private equity firms would be able to successfully compete in the mining sector.
"Size sometimes can be a disadvantage in our environment. You need to make decisions quickly - you need to have the coal face not too far removed from decision making process, so you can react quickly," Sierra Rutile's chief executive, John Sisay, said. The Sierra Leone-focused mineral sands producer's largest shareholder is specialist fund Pala.
"Smaller firms are able to do that better."
Traditional funds may also lack the extensive specialist teams needed to evaluate projects across commodities and across the world, and may be unable to invest for the longer term.
One of the top shareholders in EMED Mining, a London-listed company redeveloping the former Rio Tinto copper mine near Seville, is specialist Resource Capital.
"If you are playing the development game you are playing the development timeline," EMED's chief executive, Harry Anagnostaras-Adams, said.
Bert Koth, a Perth, Australia-based director at Denham Capital, also questioned the idea that traditional firms would step in. Although mining firms are shedding assets at a pace not seen for decades, many are doing so at auctions which can drive up prices - something private equity is likely to want to avoid.
"Generalist PE firms have a pretty poor track record as they don't fully understand the risks involved. I query whether they really appreciate what they are getting into," Koth said.