Ernst & Young says long-awaited private capital funding should begin flowing across the sector
TORONTO—In 2014, Canada was the most prolific buyer of mining and metals assets in terms of volume, and a close contender in terms of value. Despite that, overall deals globally continued to decline on both a volume and value basis in the sector compared to 2013.
“A few big deals in Canada in 2014 put us at the top in terms of deal volume,” says Bruce Sprague, Ernst & Young’s (EY) Canadian Mining & Metals Leader. “But the reality is that the majority of the deals were junior-level strategic mergers aimed at conserving cash.”
According to EY’s Mergers report, Acquisitions and Capital Raising in Mining and Metals: 2014 trends, 2015 outlook, Canada had the top gold deal in 2014, with the joint acquisition of Osisko Mining Corp by Yamana Gold and Agnico Eagle Mines for $3.6b. The next largest gold deal was the UK’s Polymetal International’s acquisition of Kazakhstan’s Altynalmas Gold (Kyzyl gold project) for $619m.
“Gold remains the most-targeted commodity by volume,” says Sprague. “We saw that play out right here in Canada. The majority (88%) of gold deals, however, were valued at less than $50m, reflecting distress among gold juniors on the back of squeezed margins.”
Still, in its outlook EY says long-awaited private capital funding should begin across the sector as sellers align their value expectations with the market, and assets continue to be sold by the large cap producers in search of optimum portfolios.
“The deals we’re seeing now are a lot of mergers between equals and consolidation opportunities benefiting both parties,” explains Sprague. “The large cap producers are more focused on looking to either sell or spin off non-core assets.”
EY says current market conditions are putting mining companies in a quandary – investing for the next stage of growth is potentially unpopular with shareholders, but it could prove to be a masterstroke if they want to fully capitalize on the next uplift in the cycle.
“For the past few years, companies have been focused on cost-reduction programs, internal capital allocation and productivity measures,” notes Sprague. “Moving forward, they need to have a broader focus on total shareholder return and make capital decisions that will support long-term value creation.”