Report finds M&A activity is sluggish in mining sector

August 11, 2014

Although the mining sector seems to be getting healthy for some of the major companies don’t expect to see a rebound in merger and acquisition (M&A) activity anytime soon.

A new report from professional services firm Ernest and Young has found M&A in the mining sector remains subdued.

The report notes that much of the buying activity in the sector this year has centered on divestments from diversified giants of the industry, including the likes of Rio Tinto and BHP Billiton, but this will slow as balance sheets improve and the need to divest dissipates, The Australian reported.

“Major diversifieds continue to consider divestments as a way of reducing debt, maximizing return on capital and driving value across the portfolio,” Lee Downham, global mining transaction chief at Ernst and Young in London, said in the report.

“However, with balance sheets largely stronger on the back of capital management, the urgency to divest has diminished and management can afford to focus on achieving an optimal exit for non-core assets.”

While Downham said the outlook for the sector “remains positive,” the industry is still seen trailing most others in the global recovery.

“The mining and metals industry lags a broader confidence revival in equity markets,” the report notes.

“Price weakness continues to place stress on certain sectors of the industry, despite management efforts to strengthen balance sheets and improve margins and returns.

“For those brave enough to invest against the cycle, there would appear to be good buy-side opportunities, albeit driven by distress and opportunism, rather than out-and-out growth-seeking.”

 

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