Base Metal Mining M&A Activity Expected to Make a Turnaround This 2015

Base metal mining companies have been wary of acquisitions in the past few years due to global financial crisis and economic downturn. These companies have bought fewer assets that require large capital investment since 2012. 2013 had been a particularly slow year for transactions as companies opted to maximise the values of their assets and enter into joint ventures that reduce costs while maintaining production. Things are looking to go up soon, however, based on a recent report released by SNL Metals and Mining.

According to the report titled “Base Metals and Gold Acquisitions Activity, 2005-14," SNL concluded that the total amount of acquisition deals in 2014 reached U$21.56 billion [$28.25 billion] compared to only U$11.88 billion in 2013. The jump in total takeover value in 2014 came entirely from the acquisition of base metal assets like copper, nickel and zinc, which amounted up to 29 deals at U$13.08 billion.

Spending on base metal acquisitions in 2014 was more than three times the amount spent in 2013. This increase was mostly due to copper, as spending on nickel only increased by four percent, while zinc acquisition tumbled down to 73 percent.

Furthermore, a string of recent mergers and acquisitions (M&A) in the global mining industry has sparked hopes that the sleeping sector would wake up soon. An example is the acquisition of mining giant Goldcorp, Inc. of Canadian gold development junior, Probe Mines, for an all-stock arrangement of U$526 million at the start of the year.

Canada-based mining companies, in fact, represented 42 percent of the total M&A deals in 2014, valued at U$9.02 billion. Another example is BHP Billiton's announcement that it will spin off assets. The majority of M&A activity is focused on gold and copper projects.

One of the expected major players in the rise of the mining M&A industry in 2015 is the private equity industry, which is now gravitating towards mining investments due to historically low valuations. "What we're also seeing in the market, adding to this demand, is the return of private equity interest," said Jeremy Jagt, mining industry leader for Grant Thornton LLP in Canada. "Funds have now raised large volumes of capital—around U$8 billion—and they are looking for investment opportunities in mining."

Similarly, junior mining companies are poised to benefit from the trend. According to Jim Mustard, vice president of investment, mining and banking at PI Financial, investors should look for the following criteria in picking junior mining stocks. "Pick only high quality assets and companies that are able to either raise capital or have sufficient funds now to both advance projects and cover general and overhead expenses for a period of time."

Russian nickel mining company Amur Minerals Corporation (LSE:AMC) is an example of a self-sufficient junior miner. Even though its focus currently lies on the Kun-Manie Project, which could potentially become one of the top 20 largest nickel deposits in the world, the company is not discounting the possibility of a takeover bid.

"Being a small company, we recognise our internal limits and have often relied upon external independent consulting companies to fill in the gaps and workload requirements. Given these characteristics, a takeover bid would be considered as a potentially viable alternative, provided the partner can bring technical and financial support to the table," an Amur Minerals spokesperson said in an interview. Amur Minerals closed at 10.75 on Monday with a trading volume of 989,526.

To contact the writer, please email a.lu@ibtimes.com.au.