Challenges and opportunities
Mining companies are suffering from the aftershocks of the global recession. Continued volatility in demand and prices is leading to business uncertainty. It is becoming increasingly hard for companies to find new, quality, and accessible assets. Most new mines are located in challenging geographical regions, resulting in escalating extraction and delivery costs.The distinctive characteristics of the mining industry mean that mergers and acquisitions (M&A) will always most likely have a place in companies’ strategies, even at a time of uncertain industry prospects. Based on available data and KPMG insight, we consider how mining companies may continue to use merger or acquisition strategies to generate increased shareholder value.
Digging deeper for profits
The industry went from boom to bust in 2008 as mining companies’ financial positions varied with changes in demand and commodity prices. Many major companies saw a marked deterioration in their financial position by the end of the year. While metal commodity prices continued to decline in Q1 2009, base metal commodity prices have shown signs of stabilization in the past few months.1, 2, 3 Spot prices for iron ore have also risen since January 2009, after falling in 2008. According to Malcolm Southwood, of Goldman Sachs, there is “scope for further strength in spot iron ore prices over the next six to 12 months” because of continued strength in Chinese steel output and because of “a recent improvement in demand for contract deliveries from non-Chinese steel mills.”4 A recovery in the prices of platinum, silver and palladium has bolstered the mining industry.5, 6, 7.
Table of contents
- Challenges and opportunities
- Digging deeper for profits
- Mining’s ongoing need for M&A
- Bright prospects from Asia
- Golden opportunities
- Corporates lead the way
- Where next?
Provided: KPMG