Credit relief for miners expected in 2014

Mining companies pinched by falling commodity prices and reluctant investors see a reprieve coming next year, shows an EY report.

EY’s Capital Confidence Barometer: Mining & metals sector shows 55% of companies are already focused on growth—compared to 38% in 2012.

Read: Trends to watch in 2014

“Transactions in the mining and metals industry have dropped considerably over the last year as companies struggled with capital allocation and access to capital challenges,” says Bruce Sprague, EY’s Canadian mining and metals leader. “Deal volume and value have fallen 36.9% and 58.1%, respectively, year over year in Canada alone. Now it looks as though that tide may be turning.”

Credit availability is improving in the sector, say staff at 47% of mining and metals companies—and 72% say they think the global economy is improving compared to 57% six months ago.

Read: Rough year for gold, more trouble ahead

Investment decisions across the sector are currently focused on deploying low-risk capital for growth. Expect companies to pursue M&A that fits within their overall portfolio rather than just to achieve scale.

“We’re beginning to see companies slowly shift their focus back to growth,” says Sprague. “Just under half of survey respondents plan to invest capital in the year ahead. And another 24% plan to pursue an acquisition. But optimism isn’t necessarily translating into the closing of finance arrangements just yet.”

Read: Financial sector to hold steady, TSX to gain, in 2014

While bank lending appears to be available to well-capitalized, investment-grade borrowers, equity markets remain challenging, with junior follow-on proceeds and IPO volumes at historic lows. This is creating new opportunities for alternative finance and private capital providers looking to invest.

“In the absence of traditional investor interest, we’ve seen a number of new buyers come on the scene, including state-owned enterprises, financial investors and commodity traders,” says Sprague. “Together, increased access to capital, improving credit availability and growing investor confidence are setting the stage for M&A activity throughout 2014.”

Read: Quebec’s mining rules spook investors

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.