Mining Weekly

There will be elevated investment and merger and acquisition (M&A) activity in Brazil’s mining industry over the coming quarters, supported by vast mineral reserves, stabilising mineral prices and debt-burdened major producers keen to offload assets, predicts research firm BMI Research.

While mining deals will increase globally, owing to metals’ strong price rally in the first quarter of 2016 and general stabilisation over the coming quarters, the research firm believes that there will be several high-value deals, particularly in Brazil’s mining sector, as overleveraged producers are forced to sell high-quality assets to reduce debt loads.

For instance, in Q1 of 2016, iron-ore producer Vale reported total debt of $31.4-billion.

“Rising private-sector debt in Brazil as a whole will dampen economic growth outlooks, with firms prioritising servicing existing obligations over expanding capacity, according to BMI Research’s ‘Industry Trend Analysis – Price Stabilisation, Prime Asset Sales to Attract Investors’ report.

In 2015, Brazil’s corporate-sector debt totalled up to 50.1% of gross domestic product, compared with previous highs of only 30.9% in the first quarter of 2008, after the financial crisis.

BMI Research further suggests an increase in M&A, noting that, as of May 23, mining investment and M&A in Brazil surpassed the total value in 2015, totalling $1.6-billion, compared with $1.4-billion in 2014.

China Molybdenum’s $1.5-billion purchase of diversified mining major Anglo American’s niobium and phosphate unit, announced in April 2016, is the biggest deal, accounting for nearly all of Brazil’s mining M&A to date.

This deal follows on other mining majors’ strategies to offload assets to increase profitability, the firm points out. For instance, in February, Vale announced a plan to sell about $10-billion in core assets over the next 18 months to shore up its balance sheet.

An improving gold price environment will spur investment and M&A activity in Brazil’s gold mining sector over the coming years, BMI Research suggests.

Although the country’s gold sector contributes a relatively small proportion to the global mining industry value, BMI Research expects improving gold prices to spur particular interest in projects in Brazil.

“[BMI Research forecasts] gold prices to edge higher over the coming months, averaging $1 275/oz in 2016 and and reaching $1 500/oz by 2020,” the company reports, suggesting that these prices will boost miners’ plans to restart or accelerate the development of projects in Brazil.

In March 2016, Canada-based mining company Belo Sun Mining received a $4.4-million investment from Sun Valley Gold for an 18.2% stake in Belo Sun, and a $4.7-million investment from Canada-based gold producer Agnico Eagle Mines for a stake of about 20.0%.

Belo Sun will direct the proceeds towards the engineering and development of the Volta Grande gold project, in Brazil, which was suspended in 2013 because of an environmental licence delay.

Further, Canada-based gold producer Yamana Gold announced its $52-million purchase of the Riacho dos Machados gold project from exploration and development company Carpathian Gold last month.