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2013 was one of the worst years for mining industry mergers and acquisitions in the last decade, but PricewaterhouseCoopers thinks 2014 will be better.
As PricewaterhouseCoopers (PwC) states in its 2014 Global mining deals outlook and 2013 review, there’s no sugar coating it — 2013 was one of the worst years for mining industry mergers and acquisitions (M&A) in the last decade.
Specifically, deal volume sank to its lowest point since 2005, while overall value hit a low not seen since 2004, largely on the back of falling commodities prices and the “ongoing confidence crisis across the sector.”
Here’s a look at some of last year’s key M&A trends, as well as what PwC anticipates happening in 2014.
2013 trends
Geographic shift: PwC highlights that 2013’s decline in deal value made eastern transactions stand out, with Russia, China and Kazakhstan accounting for 43 percent of deal value and the United States, Canada and Australia representing about 34 percent. That’s in contrast to 2012, when companies based in Canada accounted for 29 percent.
Even so, deal volume was higher in the west, with Canadian buyers accounting for almost 30 percent. Australia and the US came next at 16 and 12 percent, respectively.
Geographic shift: PwC highlights that 2013’s decline in deal value made eastern transactions stand out, with Russia, China and Kazakhstan accounting for 43 percent of deal value and the United States, Canada and Australia representing about 34 percent. That’s in contrast to 2012, when companies based in Canada accounted for 29 percent.
Even so, deal volume was higher in the west, with Canadian buyers accounting for almost 30 percent. Australia and the US came next at 16 and 12 percent, respectively.
Gold an M&A target: 2013 was a terrible year for gold, but that didn’t stop the metal from being an M&A target, states PwC. In fact, though total gold M&A was down last year — at 412 deals compared to 2012’s 548 — “it was still the most active metal for buyers and sellers.” Coming in second was coal, while copper was third, down from the second-place position it held in 2012.
Better luck this year
While some of the above numbers are a little lackluster, PwC sees better times ahead. Though the firm doesn’t “expect a huge turnaround in M&A this year,” it does see activity picking up, at least if commodities prices aren’t too volatile. That’s because “[m]ining companies are often more willing to do deals if they feel prices are steady.”
Encouragingly, PwC notes that the year is already off to a good start, with a couple examples of M&A activity including Goldcorp’s (TSX:G,NYSE:GG) hostile bid for Osisko Mining (TSX:OSK) and HudBay Minerals’ (TSX:HBM) attempt to take over Augusta Resource (TSX:AZC,NYSEMKT:AZC).
As the year continues, expect to see these trends:
- Joint venture jump: PwC anticipates a “notable uptick” in joint ventures in 2014 due to the fact that an increasing number of companies see them as a way to de-risk their projects.
- Mid-tier companies step up: More mid-tier companies are likely to be active buyers this year. Indeed, PwC states, a few have already said they are ready to make acquisitions.
- Juniors get active: Also expected to be increasingly active are juniors, which “will need to decide whether they can continue to survive alone, or will need to sell or merge with another company to stay afloat.”
- Money from mines: Companies will have more money to direct towards M&A activity as new mines come into production.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading:
Goldcorp Extends Offer for Osisko, Trial Set for March
HudBay Makes a Play for August; Resource Sector Coming to Life