Mining Sector: Aligning Certain Market Factors Should Double Mergers and Acquisitions

TORONTO and MONTRÉAL, Nov. 5, 2014 /CNW Telbec/ - A new report from international firm Grant Thornton indicates that the mining sector will herald a new era in mergers and acquisitions (M&A) as a near perfect alignment of factors takes place. Following a slow period for transactions, in which last year's deal volumes failed to breach the $90 billion[1] mark, Grant Thornton's research and analysis suggests that a fertile environment will lead to a doubling in the value of M&A in the mining sector compared to 2013.

Gathering Momentum, Grant Thornton's new report, attributes the resurgence of M&A to the confluence of four main factors, identified through feedback from over 250 senior mining executives globally. The first is that with one-in-ten junior mining exploration companies likely to enter administration and a quarter of major mining companies anticipating challenges with financial covenants, the market can expect significant quantities of distressed assets and low valuations. There is also a ripe environment for matchmaking, with a third of executives at mining companies stating that they are likely to make an acquisition (35% junior mining exploration companies and 32% major companies) and approximately the same amount showing an appetite for selling - believing that their company will either be sold or undergo a partial sale (36% junior mining exploration companies and 27% major companies/other). Furthermore, lower commodity prices are identified by the report as a driver for M&A; pushing companies to band together to generate scale and lower productions costs in order to remain competitive.

Jeremy Jagt, National mining leader, Grant Thornton Canada, said: "The mining sector is ripe for a resurgence in M&A activity. We've started to see elements of this emerge already, for example BHP Billiton's announcement that it will spin off assets. Executives at mining companies are telling us that they are in the market to make acquisitions and a near equal proportion say they will sell their mining company, or parts of it, this year. So there is plenty of opportunity for doing deals, especially for those looking to seize opportunities with distressed sellers ahead of any improvement in the metals market."

Jagt continued, "What we're also seeing in the market, adding to this demand, is the return of private equity interest. Funds have now raised large volumes of capital - around $8 billion - and they are looking for investment opportunities in mining. If these appetites persist I think that the value of transactions for 2014 will be double that of the previous year."

Anand Beejan, Partner and mining sector leader at Raymond Chabot Grant Thornton, echoes these comments, "The situation in Quebec is relatively similar to that in the other regions surveyed around the world. There are almost as many mining companies that want to sell or buy assets (44% vs. 48%), and this partly explains the sense of optimism, despite weak global demand. The best example of this situation in Quebec is the acquisition of Osisko by Yamana and Agnico Eagle in April 2014."

According to Grant Thornton, the financial downturn has been especially difficult for junior mining exploration companies with hundreds of companies still facing financial conditions that threaten their existence. 59% of junior mining exploration companies interviewed stated that they need to raise additional funds in the next 12 months and a third stated that as a result they were considering a corporate transaction or merger. It is likely that valuations will be low given the financial situation these companies find themselves in.

Beejan continued, "Financing is still untenable for junior mining exploration companies. We're seeing more and more that mining exploration is not a priority in venture capital plans. Moreover, the decrease in exploration assistance offered by the tax credit for resources announced in the initial budget tabled by the Minister of Finance of Quebec, Carlos Leitão, sent a negative message to the industry." He added, "We understand the Quebec government's need to make choices to return to a balanced budget, however, this decision seems contradictory considering the government's desire to revive the Plan Nord, a plan that is one of the rare options under its control to attract investments."

Despite recent gloom, however, industry executives and suppliers expect the sector to bounce back. They express optimism for the future, viewing recent turmoil as a correction—a painful but necessary overhaul that will lead to a more robust future.

Jagt concluded, "Arguably the conditions that will drive M&A activity wouldn't have come about without the correction of the past four years.  But, just like a planetary alignment, these conditions won't last forever. Buyers and sellers will need to take consideration of issues such as valuations and be prepared to execute strategies decisively."

Visit the following Web Site to get a copy of the report: www.rcgt.com/en/mining-report-2014.

About Grant Thornton
Grant Thornton is one of the world's leading organisations of independent assurance, tax and advisory firms. These firms help dynamic organisations unlock their potential for growth by providing meaningful, forward looking advice. Proactive teams, led by approachable partners in these firms, use insights, experience and instinct to understand complex issues for privately owned, publicly listed and public sector clients and help them to find solutions. More than 38,500 Grant Thornton people, across over 130 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work.

About Raymond Chabot Grant Thornton
Founded in 1948, today Raymond Chabot Grant Thornton (www.rcgt.com) is a leader in the fields of assurance, tax, consulting services, business recovery & reorganization. Its strength is based on a team of more than 2,400 people including some 230 partners in more than 100 offices in Quebec, eastern Ontario and New Brunswick. For the past 30 years, Raymond Chabot Grant Thornton has been a member of Grant Thornton International Ltd providing its clients with the expertise of the member and correspondent firms in more than 130 countries.

About Grant Thornton LLP in Canada
Grant Thornton LLP is a leading Canadian accounting and business advisory firm, providing audit, tax and advisory services to private and public organizations. We help vibrant organizations achieve their growth potential by offering judicious and practical advice through a wide array of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, we have approximately 4,100 people in offices across Canada.

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[1] Source: ThomsonONE. Except for the merger of Glencore International and Xstrata.

SOURCE: Raymond Chabot Grant Thornton

For further information: Information: Francis Letendre, International Marketing Manager, Grant Thornton International Ltd, [phone], [email protected]; Mishka Alarcon, Marketing Manager, National, Industries, Grant Thornton LLP, Tel.: [phone], [email protected]; For more information about the report, contact: Carol Briggs, Senior Consultant - Public Relations, Raymond Chabot Grant Thornton, Tel.: [phone], [email protected]