At some point, things must turn around.
And for some in the beleaguered mining world – a sector besieged by volatile commodity prices, billion-dollar write-downs and stalled projects for the past couple of years – that point is, hopefully, 2014.
According to a new report from PwC, 2014 Global Mining Deals Outlook and 2013 Review, the number of mergers and acquisitions (M&A) is expected to increase in 2014, albeit slowly and in more conservative deals.
New mines, reads the report, “are helping to bring more free cash flow into the industry and giving companies more money to fund M&A. What’s more, development teams, from geologists to engineers, are in need of new projects to work on. All of this should to spur M&A.”
PwC predicts the most active buyers will be mid-tier firms, while the majors are expected to continue to sell assets.
With the troubled financial climate the sector has endured, any activity in this realm would be a positive. In 2013, PwC reports M&A deal volume was down 20% compared with 2012 – a drop to 1,437 from 1,803 transactions. That’s the lowest since 2005.
Last year also marked a shift in the geography of buyers, with the eastern world accounting for about 45% of all M&A activity and the west at 36%. Historically, the west has dominated global M&A deals.
British Columbia, however, has fared well comparatively as the province’s mining companies are doing more buying than selling. In 2013, B.C.-based buyers made acquisitions for a total of $2.5 billion.
There were 117 B.C.-based companies sold or acquired in 2013, totalling $2 billion.
“It’s a positive sign, even though the values and volumes are down, we are perhaps not feeling the pinch quite as much as other territories,” said Philip Heywood, PwC’s Vancouver-based managing director of transaction services.
In a similar report released last week, EY also predicts an improved M&A climate in 2014 as companies continue to right their balance sheets.
EY also outlined a change in investment in 2013. Last year, financial investors increased their share of M&A activity by value to 19% in 2013 from 5% in 2012. Financial investors are a broad group – EY defines them as everything from commodity traders to streaming companies to private equity firms.
But according to Bruce Sprague, EY’s Canadian mining and metals leader, the advantage to such groups increasing their presence in mining is they tend to have a lot of capital but still need the expertise of mining companies that know how to evaluate good projects.
“Access to capital has been a challenge to the sector in 2013, but we’ve got new groups coming to the table, and what I’m seeing is they have lots of capital,” said Sprague.
“But they don’t have that mining acumen, so they want to marry the capital with the mining expertise and a high quality asset.” •
