Transactions are no longer just about getting bigger to get better. Mining companies are thinking about fundamental value creation, “realizable” synergies and how capital investments can enable them to drive greater efficiencies. Whether it’s to acquire assets and expertise or invest in new projects and transformative technologies – it’s about improving operations, end to end as a competitive advantage.
After years of conserving capital and strengthening balance sheets, growth is back on miners’ agenda. It’s almost been a year since news of the first big gold merger sparked discussions across the entire sector as mining and metals companies look to gear up for growth. Businesses should review recent transformational activity in the gold sector before mapping out their next steps. Whether through M&A, joint ventures or strategic partnerships, there are several benefits to consider from inorganic growth.
- Capture expertise and cut down costs: In a time where available talent in the sector is scare, M&A can be a viable route to acquire strong leadership teams and the skills and capabilities needed to navigate a rapidly evolving industry.
It can also be used to access new technologies, deposits and additional liquidity, while helping to streamline operations and reduce costs. This is especially important as rising shareholder activism continues to put pressure on mining and metals players to reshape boardrooms, improve share prices and redefine their image as sustainable and responsible operator. In fact, a recent report from Kingsdale Advisors identifies 13 activist campaigns in just the last 26 months.
- Reach new geographies: Consolidation can also offer geographical dispersion of mining activities. Globally, the mining and metals sector has predominately focused investment in lower-risk countries. Although that’s likely to continue, we also expect to see more companies look to diversify and navigate towards long-term growth options in other nations. Finding good deposits, however, can be difficult and often located in countries that are perceived to have higher risks. Ghana, for example, is growing on miners’ radars as it takes over as Africa’s largest gold producer and continues to attract investment. Companies will need to deeply consider the risk equation to investment as they look to countries outside of their comfort zone.
- Scale to attract investment: Companies participating in the recent mega mergers are beginning to divest of smaller assets, which is good news for juniors and mid-tiers looking to purchase existing and quality resources to position themselves for growth. The challenge for both parities — those looking to sell and buy — is that small and mid-tier companies still face challenges to raise sufficient capital from investors to purchase available divestments. With a need for greater capital and shrinking investor interest, there’s an opportunity for companies to review M&A options as an avenue to secure additional funds to invest in new projects and attract greater investor attention.
- Join forces with new industries: Although joint ventures have typically been a model used by base metals companies with bigger projects and more room for larger players, they shouldn’t be overlooked by the gold sector. JVs with players outside of the industry, such as technology and manufacturing for example, can reveal new ways of working and delivering product to market.
At the end of the day, companies are mining for the same product. What will set them apart is their capital efficiency, licence to operate, operational excellence and strong management teams to lead them through times of uncertainty. With consolidation not expected to slow anytime soon, the year ahead is ripe with opportunities for the mining and metals sector to review potential synergies and shift deals from being divestment-led to investment-led to capture the attention of investors and provide increased returns.
JEFF SWINOGA is the EY Canada mining and metals industry co-leader. He is based in Toronto. For more information, visit www.ey.com/ca/mining-metals.