Less than one-quarter of global mining and metals companies will be concentrating on mergers and acquisitions (M&A) in the first half of 2013, according to Ernst and Young's semi-annual Global Confidence Barometer report published last week.
According to the report, total deal value dropped 45% year over year to US$16.3 billion in 2013's first quarter. Over the same period, deal volume also dropped 35% to 168 deals.
Bruce Sprague, Ernst and Young's Canadian mining and metals leader, told Business in Vancouver that instead of looking for new large projects, the mining sector's priorities will be threefold: jobs, capital optimization and shedding non-core assets.
"We've seen BHP [Billiton] (NYSE, ASX:BHP) (LSE:BLT) sell their EKATI diamond mine. It was perceived as non-core," said Sprague. "And they sold their Pinto Valley copper mine to Vancouver-based Capstone Mining (TSE:CS) as well."
He added that some of the reasons behind the sector's shift away from M&A are softer commodity prices and on-the-ground challenges such as skill shortages and potential infrastructure problems.
"The major mining companies are focused on organic growth. The request they're hearing from shareholders is to maintain capital program efficiency and a focus on internal perspective."
Echoing Sprague's sentiments, Gavin Dirom, president and CEO of the Association for Mineral Exploration British Columbia, told BIV that there was a "low risk tolerance" with many companies at the moment.
"Small, medium and large companies are in conservative economic mode," said Dirom.
"And it's survival mode for some junior companies."
But he said there are examples of companies exploring other expansion options aside from M&A.
Some companies are getting involved in joint ventures, which allows them to expand their work while sharing costs.
An example of such a deal, Dirom added, was Serengeti Resources Ltd.'s (TSX-V:SIR) agreement with Fjordland Exploration Inc. (FEX:TSX-V) to mine properties in northern B.C.
Another opportunity being explored by companies is securing private equity placements. Rather than going to market, Dirom said some companies are approaching private wealth first in the hopes of securing funding for projects.
"It's an interesting development because those companies and investors are seeing opportunity. It's not being reflected in the market yet, but private equity is seeing a chance here. In some cases, this can keep companies alive and will reward investors down the road."
