Almost 90% of the world’s largest mining companies expect to grow through acquisition in the next two years, according to a new global report, released today by Ernst & Young.
Companies in Canada and the United States are seen as likely targets.
The report, which is based on interviews with 70% of the top 40 global mining and metals companies, reflects the sector’s confidence in the boom continuing. Forty-per cent of respondents say they were only able to meet their aggressive growth targets through acquisition.
“The global mining sector is flush with cash right now, and there’s a strong appetite for more transactions,” says Tom Whelan, E&Y’s Canadian mining leader. “Companies in Canada and the U.S. are attractive targets because most companies in North America have a single metal focus. This makes them neat strategic acquisitions.”
Twenty-two per cent of respondents say North America, Africa and the countries of the former Soviet Union hold the most interest over the next 12 months. Thirty-nine percent say South America is a priority.
According to the report, 2008 will be the year that defines the hunters because resource security concerns are inspiring new acquirers and the credit crunch is providing new challenges for junior mining companies.
“While the credit crunch is proving to be a challenge for the juniors, it’s not having a huge impact on the overall rate of consolidation. If anything, the rate of consolidation could accelerate in the short- to medium-term,” Whelan says. “The cost of debt has soared, but we aren’t aware of any bankable transactions in the sector that haven’t been completed because of debt availability issues.”
Even when the liquidity of debt markets was shrinking, the mining sector still proved an attractive sector for lenders with Ernst & Young analyses showing nearly 60% of 2007 loans were made in the second half of the year.
The credit crisis is however having an impact on the IPO market in the sector, with the amount listed from IPOs stagnant in the second half of 2007, a trend that has continued into 2008.