In a new report, Fitch Ratings says that it does not expect leveraged-buyout transactions or leveraged recapitalizations in the global mining industry.

The rating agency notes that resource companies have been, for the most part, spared from private equity activity bidding wars out of fears that future returns will be exposed to volatile commodity prices. And, for the same reason, Fitch does not expect to see LBO transactions or leveraged recapitalizations in the mining industry in the future.

Consolidation in the metals and mining industry has been fueled by very strong cash flows over the past three years and near-term prospects for quick debt repayment, it notes. Benefits of these sorts of deals generally include diversification by operation or commodity, integration or consolidation of operations, as well as the ability to leverage exploration, engineering and metallurgical expertise, Fitch says. Shareholder activism is also increasingly a factor, it adds, with transaction approval no longer a sure thing and increasing calls for management to deliver returns in the near term.

“While there has been a recent spate of shareholder-friendly capital programs announced, we foresee more spending in exploration and capital improvements, albeit not on a scale that would result in oversupply generally,” Fitch says.

“Adequate liquidity and a flexible capital structure are crucial to maintaining a healthy asset base for mining and metals companies, given earnings and cash flow exposure to volatility in commodity prices, the long time horizons of development and capital projects, and relatively high operating risk,” it concludes.