TORONTO (miningweekly.com) – In the wake of stabilising commodity prices led by a gold rally in the first quarter, the Brazilian mining sector is set to play host to increased investment and mergers and acquisitions (M&A) activity.

Host to miners such as Yamana Gold and spin-out Brio Gold, Eldorado Gold, Belo Sun Mining, Brazil Resources, Crusader Resources and Anfield Nickel, gold was expected to take much of the limelight in terms of improving investment and M&A activity over the next few years on the back of an improving gold price, according to research firm BMI Research, an affiliate of the Fitch Group Companies.

In its latest ‘Industry Trend Analysis’ sent to Creamer Media's Mining Weekly Online on Wednesday, BMI had found that much of the activity over the coming quarters would be spurred by major producers looking to sell core assets in a bid to reduce debt loads.

“Although Brazil's gold sector contributes a relatively small proportion to the mining industry value, we expect improving gold prices to spur particular interest in projects in Brazil,” BMI stated.

The firm had recently upgraded its target gold price to $1 500/oz by 2020, on the back of increasing inflatory pressure, expecting gold prices to edge higher over the coming months to average $1 275/oz in 2016.

According to BMI research, higher gold prices would boost miners' plans to restart or accelerate development of projects in Brazil.

For example, Canada-based Belo Sun Mining had in March received a $4.4-million investment from Sun Valley Gold for an 18.2% stake, and a $4.7-million investment from Agnico Eagle Mines for about a 20% stake. Belo Sun had stated that it would direct the proceeds toward the engineering and development of the Volta Grande gold project, which was suspended in 2013 over an environmental licence delay.

Further, on May 9, Yamana Gold announced its $52-million purchase of the Riacho dos Machados gold project, from Carpathian Gold. In the first quarter, Lara Exploration announced plans to acquire the early-stage Serrita and Tocantins gold projects and Anfield Nickel-acquired Magellan Minerals for about $19-million to develop the Coringa gold project.

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According to BMI’s research, Brazil's mining industry in general would see higher investment and M&A over the coming quarters, supported by a combination of its vast mineral reserves, debt-burdened major producers keen to offload assets, and stabilising mineral prices.

While mining deals were expected to pick up globally, owing to metals' strong performance during the first three months of the year and general stabilisation over the coming quarters, Brazil's mining sector in particular would see a number of high-value deals, as overleveraged producers would be forced to sell high-quality assets, BMI advised.

For instance, during the first quarter, the world’s largest iron-ore producer Vale reported total debt of $31.4-billion.

Rising private sector debt in Brazil as a whole will dampen the economic growth outlook, with firms prioritising servicing existing obligations over expanding capacity, according to the report.

In 2015, Brazil's corporate sector debt reached up to 50.1% of the country’s gross domestic product, compared with previous highs of only 30.9% in the first quarter of 2008, post-financial crisis.

BMI pointed out that M&A would pick up following miners' strategies to offload assets and lessen debt loads. As of May 23, mining investment and M&A in Brazil already surpassed the total value in 2015, reaching $1.6-billion, compared with $1.4-billion the previous year.

Over this period, China Molybdenum's $1.5-billion purchase of Anglo American's niobium and phosphate unit, announced in April, was the largest deal, accounting for nearly all of Brazil's mining M&A thus far. The deal reflected a significant milestone in Anglo’s restructuring programme and the former's ongoing efforts to secure raw materials abroad, researchers advised.

This deal followed on other majors' strategies to offload assets and increase profitability. For instance, in February, Vale announced a plan to sell about $10-billion of core assets over the next year and a half to shore up its balance sheet.