PwC: M&A Activity Takes Center Stage for Canadian Miners

According to PwC’s Mine 2019 report, mergers and acquisitions (M&A) have returned to the forefront in the last six months, with several of Canada’s top 25 miners taking advantage of their improved balance sheets.

At the end of 2018 and the beginning of this year, large miners, particularly in the gold space, took to M&A as a strategy to replenish reserves and boost their portfolios.

“Last year marked a turning point for the mining industry, and 2019 brings even more possibilities for companies to position themselves for the next stage of growth,” said Dean Braunsteiner, national mining leader at PwC Canada.

“While recent mergers were a sign of a wave of consolidation that will help companies better compete for capital, we can expect even more M&A activity in the near future,” he added.

According to PwC, this new era of consolidation has the potential to set up the mining space for more exploration and mine development, all while boosting investor interest and activity — something that declined for a large part of last year.

“(M&A) creates a cascading effect of further deals as companies sell off non-core assets, which brings new opportunities for management teams to build the next big Canadian mining company,” Braunsteiner continued.

Adding to the positive sentiment is the fact that many TSX-listed miners have begun to recover from the steady declines seen at the end of 2018. Last year saw the combined valuation of all mining companies on the TSX decline by 12.7 percent to C$253.9 billion. There was also a 10.8 percent decrease in the market capitalization for the entire TSX market.

Despite the downturn seen in 2018, most mining issuers recovered from the losses by Q1 of this year. The mining space remains the third largest on the TSX, making up 10 percent of its total value, behind only financial services (29 percent) and industrial products and services (12 percent).

Although 2017 was a year when commodity prices mostly thrived, 2018 took a turn for the worse, sending prices spiraling.

In 2018, spot prices for all base and precious metals decreased, with metals such as zinc, copper and nickel falling 25 percent, 17 percent and 6 percent, respectively. Even battery metals such as cobalt and lithium, which have made impressive gains over the last five years, saw double-digit declines last year.

2019, however, is proving to be a more successful year for certain metals, as copper, zinc and nickel have all shown impressive gains during the first quarter. The report also notes that gold has rebounded but is still looking for a significant price increase.

Despite the yellow metal’s slow rally, PwC points out that the metal remained the most dominant commodity among the top 25 miners. Of the top 25 companies that the report focuses on, 21 of them now have exposure to the precious metal, which is an increase from 19 miners last year. Additionally, 14 companies have exposure to copper and four to nickel. As for zinc and silver, nine companies have exposure to those metals.

Looking ahead, PwC believes that M&A will continue for 2019, but, as the report reveals, another way to increase the mining industry’s standing will be through digital technology.

Fortunately, mining companies have already begun to explore how they can incorporate digital technologies into their businesses. For example, in January of this year, a number of TSX-listed mining companies such as Goldcorp — now Newmont Goldcorp (TSX:NGT,NYSE:NEM) — Wheaton Precious Metals (TSX:WPM,NYSE:WPM) and Kutcho Copper (TSXV:KC,OTC Pink:KCCFF) announced that they are collaborating on a new mining supply chain solution based on IBM’s (NYSE:IBM) blockchain platform.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.