Australian Miners Love Bonds With Yield Gap at 4-Year Low

Equinox Minerals Ltd. （EQN）, bidding C$4.8 billion （$4.9 billion） for Lundin Mining Corp. （LUN）, is considering a debut bond sale as Australian resources companies pile into capital markets to finance production at the lowest relative yields since 2007.

Equinox, coal miner Aston Resources Ltd. （AZT）, copper producer OZ Minerals Ltd. and Fortescue Metals Group Ltd. are among the companies considering bond sales, following on last quarter’s record offerings. Equinox said March 3 it may sell bonds and debt convertible into equity, while Aston said the same day it is considering a debut offering of as much as $500 million.

Mining companies in Australia are racing to buy operations and build mines to take advantage of near-record prices for coal, iron ore and gold. The extra yield investors demand to hold the debt of resource companies instead of similar-maturity government bonds dropped 64 basis points, or 0.64 percentage point, since Sept. 1 to 154 basis points, according to Bank of America Merrill Lynch indexes. The spread on Australian corporate debt shrank 54 to 165, while international dollar bonds narrowed 26 to 101.

“In Australia, the more corporate mining companies issue, the better it is because the corporate markets are mainly driven by banks and financial institutions,” Kumar Palghat, who helps manage the equivalent of $3.5 billion at Kapstream Capital in Sydney, said by phone. “People would like to buy non-financial assets and there will be a good appetite for it. We’d have an interest in them.”

Global mining and energy deals are poised for the biggest first quarter since 2008, according to data compiled by Bloomberg. There have been 576 deals announced valued at $121.5 billion, with 74 worth $11.1 billion in Australia, the world’s biggest shipper of coal and iron ore.