VANCOUVER - Canadian mining deal value and volume fell 37% and 19%, respectively, in 2012 compared to a year earlier, according to Ernst & Young's new report Mergers, acquisitions and capital raising in mining and metals: 2012 trends, 2013 outlook. However, activity is set to pick up in the year ahead,
"Despite mirroring the global decline in deal value and volume, Canada maintained an 18% share of global mining and metals M&A value and 37% of global volume in 2012," says Bruce Sprague, Ernst & Young's national mining and metals leader. "We saw a number of mid-tier and junior executives maintain confidence to pursue acquisitions despite turbulent times — a drive that's set to continue in 2013."
This appetite also contributed to a rise in Canadian outbound investment volume, with many companies pursuing large, cross-border strategic acquisitions to expand existing operations.
Meanwhile, rising costs, softer commodity prices and project execution challenges have mining and metals companies renewing their focus on cost savings, capital optimization and shedding non-core or underperforming assets until commodity prices recover sufficiently to encourage new investment.
"Mining and metals companies around the world are managing a number of macroeconomic factors," says Sprague. "We've seen these factors dampen deal appetite here at home — and abroad."
The report reveals the downturn in Canadian deal value and volume is part of a broader global trend. Global transactions value and volume declined by 36% and 7%, respectively, from 2011 — with the lowest number of deals since 2008 and the smallest by value since 2009. But the tide is turning, Sprague says.
"Over the next year, we expect to see investment increase at a slower pace, with the majority of Canadian companies doing deals looking to scale up existing operations by acquiring 'de-risked' assets," says Sprague. "These companies are also looking close to home for potential targets, with Latin American countries such as Peru, Chile and Mexico at the top of the investment destination list."
The Canada-China Foreign Investment Protection and Promotion Agreement is also expected to reignite Chinese state-owned enterprise interest in the country's resources sector, as Canada looks to stimulate economic growth in a move that will help offset ailing inbound investment from the United States.
For more information, please visit EY.com/ca.