The metals and mining world might be about to see a resurgence in deal-making. Mergers and acquisitions in the sector reached a decade-low last year, accounting for 3 percent of transactions across all industries, Macquarie Group Ltd. said. As long as commodities don’t plunge, weaker prices in the second half may spur more deals as buyers gain the upper hand and sellers become more desperate, according to the bank’s survey of more than 60 companies.
This year “could mark the turning point in deal activity,” Macquarie analysts including Alon Olsha said in a report Wednesday. “2016 should be the nadir for deal firepower.”
The Bloomberg Commodity Index reached the lowest in more than two decades in January amid slowing demand from top user China following years of over-investment in supply. Producers responded by cutting output, jobs and exploration spending and reducing debt. While that helped raw materials enter a bull market this week, prices are still more than 60 percent below a 2008 peak.
There are signs of deals picking up. Freeport-McMoRan Inc. last month agreed to sell its stake in a Democratic Republic of Congo copper mine and Anglo American Plc recently disposed of its niobium and phosphates business. Glencore Plc is selling two copper assets and exploring options for a gold mine in Kazakhstan.
“For natural resources companies, growth is not simply an advantage over peers,” Macquarie said. “It’s an existential imperative as resources are finite and must be replenished. The sector must guard against capital austerity today compromising on growth and returns tomorrow.”
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