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TORONTO (miningweekly.com) – Improved credit availability was set to drive momentum in the mining and metals sector in the year ahead, according to professional services firm Ernst & Young’s (EY's) ‘Capital Confidence Barometer: Mining & metals sector’ report.
Fifty-five per cent of companies were already focused on growth – compared with 38% in 2012.
"Transactions in the mining and metals industry had dropped considerably over the last year as companies struggled with capital allocation and access to capital challenges. 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," EY Canadian mining and metals leader Bruce Sprague said.
Forty-seven per cent of mining and metals companies believed credit availability was improving in the sector – and 72% believed the global economy was improving compared with 57% six months ago.
Investment decisions across the sector were currently focused on deploying low-risk capital for growth. Expect companies to pursue mergers and acquisitions (M&A) that fit within their overall portfolio rather than just to achieve scale, he said.
"We're beginning to see companies slowly shift their focus back to growth. Just under half of survey respondents planned to invest capital in the year ahead. And another 24% planned to pursue an acquisition. But optimism isn't necessarily translating into the closing of finance arrangements just yet,” Sprague warned.
While bank lending appeared to be available to well-capitalised, investment-grade borrowers, equity markets remained challenging, with junior follow-on proceeds and initial public offering volumes at historic lows. This was 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. Together, increased access to capital, improving credit availability and growing investor confidence were setting the stage for M&A activity throughout 2014,” he said.