[miningmx.com] – MERGER and acquisition activity in the global mining industry was expected to revive in 2014 albeit in a more measured manner and only where bids for low cost, low risk assets were on the table, said CIBC World Markets.
In a report dated November 29, the bank said it was “cautiously optimistic” there would be a rebound in activity in 2014 after global mining merger and acquisition activity fell to a mere $34bn year-to-date from $125bn in 2012.
The year-on-year decline in transaction activity was put down to increased volatility in metal prices with gold and copper falling 30% and 20% respectively while uncertainty as to the direction of prices made buyers of assets cautious.
Cost overruns and capital expenditure inflation also constrained deal activity which meant companies focused on right-sizing their mines and less on sales. Geo-political challenges such as increases in mining taxes and labour instability also undermined the confidence of resources companies in the last year.
Price stability and the improvement in the fundamentals of base metals demand, especially in China, could improve prospects in 2014, CIBC World Markets said. It warned, however, that there were “no immediate catalysts” for a sharp rebound.
There had also been an increase in financial capital seeking to invest in mining from among the ranks of private equity with a few former mining executives leading organisations focused on finding asset bargains.
“Given past challenges, markets will scrutinize each deal more carefully but will continue to be supportive of high quality transactions in our view,” the authors said. “There are assets with moderate capital requirements that can now be acquired at fractions of their recent highs,” they said.
“Strong fundamentals underlie the demand for base metals, uncertainty in underlying commodity price forecasts is beginning to dissipate and, perhaps most importantly, valuations remain at attractive levels for those companies that have access to capital and are willing to take a longer term view,” said the banks co-authors, Mike Boyd in mergers and acquisitions and investment banker, Chris Gratias.
