March 6, 2017 - After an increase in the amount of mining deals in 2016, the trend is expected to continue in 2017 but deal values won’t keep pace.
According to Ernst and Young’s (EY) Quarterly Report on Mineral Mergers, mining deal volume ticked up by 16 percent in 2016, from 132 to 153 deals. Canadian deal value, however, remained virtually unchanged, falling by one percent year-over-year to just over $6 billion in 2016.
“There’s a move away from the mega deals that we saw during the last cycle,” said Michelle Grant, EY’s B.C. Mining and Metals transactions leader. “In 2016, one deal was valued at over $1 billion and several deals were greater than or equal to $0.5 billion. We expect the trend of more, but smaller deals to continue in 2017.”
Grant continued, “Key deal drivers in 2016 included diversification, balance sheet strengthening through business combinations and investment in exploration initiatives through acquisition of junior exploration companies.”
Looking Back on 2016
Similar to 2015, gold was the commodity of choice last year. However, in 2015, the deals were more diversified, while in 2016, all but one of the top 10 deals in Canada were in gold.
Half the deals in Canada were done for diversification purposes, either geographically or from a commodities perspective.
Nine out of the top ten deals were acquisitions or business combinations.
“In 2017, we expect a more positive industry outlook and access to capital, leading to an improvement in transaction activity this year,” Grant said.
Looking Ahead to 2017 Trends
While in Canada we’ll likely see more, but smaller deals, we may see Chinese domestic producers consolidating, resulting in bulkier transactions.
The lack of exploration spend as a result of limited access to capital will inevitably contribute to a future supply deficit.
Early signs of market bottom will encourage those who’ve successfully strengthened their balance sheets to start considering strategic acquisitions.
The expected continued consolidation of commodity prices in 2017 will positively impact the sector outlook and strengthen investor confidence.
Any increase in issuance of convertible bonds, though probable, is likely to be limited in relative terms when considering the overall funding landscape.
IPOs are expected to pick up in 2017, albeit marginally, reflecting the cautiously optimistic sentiment that continues to grip investors.
The return to growth in 2017 is likely to see a steady rise in transaction volumes, as miners resume funding long term capital expenditure projects.
To read the full report, Mergers, acquisitions and capital raising in mining and metals—2016 trends, 2017 outlook, click here.