Mining industry may see M&A rush on weak share prices – McKinsey
LONDON – The fall in the share prices of mining companies could offer potentially valuable merger and acquisition opportunities for those in the industry who want to expand, global consulting group McKinsey & Company said on Friday, adding that recent M&A activity indicated some of those in the business were already seizing the day.
After years of surging, commodity prices are now well below their peaks in 2011. Coal has plunged around 70%, iron ore around 65% and copper and gold have lost more than 30%.
The shares of mining companies have fallen in tandem with this, forcing the bigger houses to slash costs, halt investment and execute all manner of means to boost productivity.
But McKinsey suggests there may be light ahead: “Our commodity-by-commodity modelling suggests that stock-market sentiment may have overshot once again.”
According to the consultancy, declining ore quality and limited accessibility of new deposits will squeeze supply in coming years. This could drive a commodity-price rebound as demand rises and mining equity prices could be expected to spike as well.
“Such an outlook provides a moment of real opportunity. Growth is the big strategic conundrum in the mining sector … For mining leaders looking to grow or reposition their portfolios, current low equity prices could represent an important opportunity,” McKinsey said.
“We do not know exactly when the mining sector will rebound, and our analysis suggests the outlook is not equally rosy for all commodities, but the recent sparks of M&A interest indicate that some industry participants have a similar view and suggest that more of this kind of activity is likely as bid-ask spreads narrow,” the consultancy added.
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