Funding for mining developments and for mergers and acquisitions activity is expected to pick up significantly in 2014 and confidence is returning to the sector according to a report from consultants Ernst & Young.
There is little doubt that growth is back on the mining and metals agenda, says E&Y
in ‘Mergers, acquisitions and capital raising in mining and minerals’. E&Y’s report says expectations of commodity price rises in the medium term will be one of the factors driving increasing investor interest in the mining sector after 2013 seeing the lowest amount of mergers and acquisitions activity since 2006.
Banks are expected to compete to offer leveraged loans for quality mid tier miners and developers engaged in less risky jurisdictions. ‘Juniors’ however are unlikely to attract the same scale of investor and funding interest until there is more evidence of sustained commodity price rises and improved cost controls in the industry. Many juniors are said to be in survival mode and to have effectively suspended exploration and development activities to preserve cash. Investors are looking for low risk, near term and high yield opportunities which early stage juniors cannot offer.
E&Y say 2013 was an ‘inflection point’ when management and investors came to terms with a new investing paradigm and global exploration spend fell. Recent increasing private capital and financial institution interest in the sector however supports the view that the market bottom has been reached.
E&Y says it expects price volatility for minerals to continue for at least another two years but despite this mergers and acquisitions and mining job creations are expected to grow during the first half of 2014 driven by financial investors and equity backed alternative capital providers. This will be driven by anticipated longer term commodity price recovery and by the “application of in house technical experience to drive operational, technical and financial influence”.
Photo: Corrie Barklimore
