Overall deal volume in mining and metals last year sank to its lowest level globally since 2003, according to Thomson Reuters data, as the industry's sellers, crippled by more than $1 trillion in debt, crowded a market with very few buyers.

Bankers, funds and investors, however, say that could change in 2016, as specialist buyers rethink a market where prices are languishing, mines are losing money and the traditional competition is weak.

Funds sidelined and waiting for the right deals could amount to as much as $3 billion, according to a ballpark figure from corporate finance and restructuring firm FTI Consulting.

"The longer this commodity rout continues, the greater number of restructures," David McCarthy, national leader for restructuring at Deloitte in Sydney, told Reuters.

"Some of those will be by existing financiers and existing equity holders. For others, the risk will be too great - and that's where distressed opportunities will (be)."

Oaktree Capital, the world's largest investor in distressed debt, opened an office in Sydney this month, in part at least because of the strain in mining, it said, particularly iron ore, where it sees potential for deals.

Others are targeting existing mines where the geology has already been proven - and not development projects - for gold, copper, zinc and rare minerals, all exposed to the later stages of the economic cycle and renewable energy.

"I think it will be a busy year for everyone in the industry," said Michael Ryan, a senior managing director of FTI Consulting in Perth.

"I expect to see a lot of restructuring and cost cutting work, debt for equity transactions, restructuring balance sheet type transactions, sales of assets, divestiture of non-key assets to further shore up (distressed miners') balance sheets."

In Australia's struggling iron ore sector for example, existing lenders to Atlas Iron (>> Atlas Iron Limited) agreed to take a haircut on repayments in return for a larger equity stake.

But steel and iron ore group Arrium (>> Arrium Ltd), with nearly $2 billion of debt, had to look outside for help, turning to GSO Capital Partners, the global credit and alternative investment arm of PE behemoth Blackstone Group (>> Blackstone Group LP).

Earlier this month, it secured $927 million in funding to help Arrium retire debt and overhaul its business.

Media reports have said Cerberus Capital Management, another major U.S. investor in distressed assets, also considered a move on Arrium and remains on the sidelines. Cerberus did not respond to an emailed request for comment.

In November, global PE group Denham Capital backed Perth-based Auctus Minerals and its management team of mining restructure specialists with $130 million, as it bought battered Atherton Resources (>> Atherton Resources Ltd), which holds zinc and gold-copper resources in Queensland.

"If you invest equity into what makes money at current price levels, you also have the unlimited upside if, during the holding period, the market recovers," Denham Capital Managing Director Bert Koth told Reuters.

But the key question is how long these new financial investors can hold on to mining assets, given futures prices that suggest metals prices could languish for as long as another decade - the very cycles that have long kept private equity out of mining.

"People are saying we're probably at the bottom but what they don't know is how long we're going to stay at the bottom," FTI's Ryan said.

(Reporting by Melanie Burton in MELBOURNE and Swati Pandey in SYDNEY; Editing by Richard Pullin)

By Melanie Burton and Swati Pandey