(Kitco News) - The global mining industry is on the cusp of a significant wave of mergers and acquisitions (M&A) as companies shift their focus to growth, according to Nicole Adshead-Bell, Director of Cupel Advisory.
Speaking at the Vancouver Resource Investment Conference, Adshead-Bell highlighted that investors are now prioritizing growth after a period of capital discipline. “We’re in the part of the commodity cycle where you, investors are starting to ask for growth,” she told Kitco Senior Mining Editor and Anchor Paul Harris, indicating a major shift in investor sentiment.
This renewed emphasis on expansion comes after a period where the industry was focused on cost-cutting and capital preservation. Adshead-Bell noted that during the downturn, “everybody was concerned about capital discipline, didn't want to see any R&D, so no exploration dollars spent.” Now, with rising commodity prices, investors are looking for companies that can increase production and expand their operations.
Fueling the M&A frenzy
Several factors are contributing to the expected increase in M&A activity. A recent divestment program by Newmont, which raised $3.9 billion, has left many companies looking for new assets to acquire.
“When you have an event like this, where a major that's divesting itself, those assets are gone, then companies start to feel like they're missing out,” Adshead-Bell explained. This sense of missing out is likely to drive companies to seek acquisitions in order to expand their portfolios.
Adshead-Bell also noted a tendency for companies to follow industry trends. “What tends to happen is boards of management go, ‘well, that company did it, so we should be doing it’,” she said. This herd mentality, combined with the desire for growth, is expected to fuel a significant amount of M&A activity in the coming year. However, Adshead-Bell cautioned that M&A can be “commonly negative for the acquirer; very good for the seller.”
Undervalued developers as M&A targets
Adshead-Bell pointed out that mining developers are currently undervalued, making them attractive M&A targets. “I would argue that the developers are still very undervalued on a relative basis,” she said.
She noted that developers have not received the same attention as producers, and believes that this disparity will change as the M&A wave gains momentum.
Investors will be looking at “both corporate and investor interest start to trickle down into the developers,” she added.
Other factors influencing the mining sector
While the focus is on M&A, other factors are also influencing the mining sector. Adshead-Bell pointed to a shift in investment toward Saudi Arabia.
"The pendulum seems to be moving towards Saudi Arabia, the Middle East," she said, highlighting the kingdom’s ambition to become a politically non-aligned friend of the mining world. “They’re not looking to invest just to get a flip trade the next quarter. They’re looking at a three, four, five-year timeline,” she said.
Adshead-Bell also highlighted the challenges faced by junior mining companies in raising capital. Despite high commodity prices, junior mining companies are struggling to raise capital. “It’s still incredibly difficult to raise money if you’re a small company,” she noted.
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