Struggling small miners vulnerable to mid-sized rivals

* Africa and Latin America to see consolidation

* Mid-caps to lead M&A as majors cut spending

* New investment vehicles expected to buy in 2014

By Stephen Eisenhammer

LONDON, Jan 16 (Reuters) - A year of tumbling share prices and a shrinking pool of funding have left smaller mining companies vulnerable to the approaches of medium-sized rivals with cash in the bank and an eye for a bargain.

Investors and executives told Reuters they saw opportunities for mid-caps and turnaround specialists in regions such as Latin America and Africa as some small companies, typically those involved in the capital-intensive early stages of a project, struggle to secure funding from banks or the market.

The gold sector is likely to see the most M&A activity as the metal price languishes 25 percent lower than a year ago, and a number of potential deals are already in the works. Equities were hit even harder than bullion; the Thomson Reuters (Frankfurt: TOC.F - news) Global Gold Index of 43 gold miners more than halved in 2013.

Industry insiders said the trend would also spread across base metals and iron ore. Nearly all junior miners were hit last year, with the Thomson Reuters index of 144 resources companies listed on London's alternative market (AIM) down 33 percent in 2013.

"Many of the smaller exploration companies are very short of cash and may well go under this year unless either new equity is found or the company is acquired," said Ian Coles, partner at law firm Mayer Brown who specialises in mining finance.

With the biggest miners under pressure to cut spending and streamline operations, it is second-tier rivals with spare cash from strong producing assets that are most likely to drive deals.

"It's a very opportunistic environment ... If it's M&A, it will be mainly well financed, cash flow-rich, mid-sized producers that may opportunistically look at projects and companies," said Markus Bachmann, manager of precious metals and global resources funds at Craton Capital.

A number of potential deals have already emerged. On Tuesday Canada's Goldcorp (Toronto: G.TO - news) bid for smaller rival Osisko for $2.4 billion. Last month Asanko Gold (AMEX: AKG - news) agreed to buy Africa-focused PMI for $173 million, while Centamin (Toronto: CEE.TO - news) 's $37 million offer for Ampella Mining was recommended by the target's board.

Neil Gregson, manager of the JP Morgan Global Natural Resources fund, picked out Lundin and Northern Star Resources as potential consolidators.

As well as Africa, Gregson said he expected Latin America to see acquisitions, singling out copper in Peru.

"There's quite a few of these juniors around who have copper discoveries, but when your market cap has gone from $500 million to $100 million and the capital project is $2 billion you're never going to be able to finance it, so you have to do a deal," he told Reuters.

A LOT OF STRESS

One firm expressing a desire to pick up assets this year is gold miner Mandalay Resources (Toronto: MND.TO - news) , which has a market valuation of $240 million, according to Thomson Reuters data.

Mandalay bought the Challacollo silver project in Chile from Silver Standard Resources (NasdaqGS: SSRI - news) in December for $15.8 million and is looking for more acquisitions.

"If you're a counter-cyclical buyer, this is a pretty good time to look at the market place," Chief Executive Brad Mills told Reuters.

"We do see a lot of stress; unfunded juniors, exploration and development projects that are really stuck. It presents a good deal of opportunity," added Mills, who was formerly chief executive of platinum producer Lonmin (LSE: LMI.L - news) and now also runs a private investment vehicle involved in copper, gold, and iron ore ventures.

X2, the new venture of former Xstrata boss Mick Davis, is also currently raising funds and is expected to purchase assets this year. On the smaller side of the spectrum, International Mining (LSE: MIR.L - news) and Infrastructure Corporation, which bought Cameroon-focused iron ore miner Afferro last year, has said it is looking to make further acquisitions.

David Archer, who built Savage Resources from an initial $1 million of investment into a $350 million business in the 1980s and 1990s, is now chief executive of Savannah Resources , which is looking to build a portfolio of assets in Africa.

"We are actively evaluating a range of projects and hope we can secure one in the first half of 2014," Archer (Frankfurt: 8SW.F - news) told Reuters.

Savannah (LSE: SAV.L - news) is eyeing gold and copper along the Nubian shield on the Western flank of the Red Sea.

"There are certainly distressed companies with decent assets out there," Archer said.