Struggling small miners vulnerable to mid-sized rivals – by Stephen Eisenhammer (Reuters India – January 16, 2014)

http://in.reuters.com/

LONDON, Jan 16 (Reuters) – A year of tumbling share prices and a shrinking pool of funding have left smaller mining companies vulnerable to the approaches of medium-sized rivals with cash in the bank and an eye for a bargain.

Investors and executives told Reuters they saw opportunities for mid-caps and turnaround specialists in regions such as Latin America and Africa as some small companies, typically those involved in the capital-intensive early stages of a project, struggle to secure funding from banks or the market.

The gold sector is likely to see the most M&A activity as the metal price languishes 25 percent lower than a year ago, and a number of potential deals are already in the works. Equities were hit even harder than bullion; the Thomson Reuters Global Gold Index of 43 gold miners more than halved in 2013.

Industry insiders said the trend would also spread across base metals and iron ore. Nearly all junior miners were hit last year, with the Thomson Reuters index of 144 resources companies listed on London’s alternative market (AIM) down 33 percent in 2013.

“Many of the smaller exploration companies are very short of cash and may well go under this year unless either new equity is found or the company is acquired,” said Ian Coles, partner at law firm Mayer Brown who specialises in mining finance.

With the biggest miners under pressure to cut spending and streamline operations, it is second-tier rivals with spare cash from strong producing assets that are most likely to drive deals.

“It’s a very opportunistic environment … If it’s M&A, it will be mainly well financed, cash flow-rich, mid-sized producers that may opportunistically look at projects and companies,” said Markus Bachmann, manager of precious metals and global resources funds at Craton Capital.

A number of potential deals have already emerged. On Tuesday Canada’s Goldcorp bid for smaller rival Osisko for $2.4 billion. Last month Asanko Gold agreed to buy Africa-focused PMI for $173 million, while Centamin’s $37 million offer for Ampella Mining was recommended by the target’s board.

Neil Gregson, manager of the JP Morgan Global Natural Resources fund, picked out Lundin and Northern Star Resources as potential consolidators.

For the rest of this article, click here: http://in.reuters.com/article/2014/01/16/mining-consolidation-idINL6N0KH26R20140116