- Industry yet to adjust to low prices, World Bank official says
- U.S. rate increase probably would exacerbate consolidation
Mining is ripe for a new round of consolidation as metal prices stay low and access to capital tightens, a World Bank official said.
Medium-sized producers are set to lead deals as small companies succumb to the price rout and large producers seek growth, Paulo de Sa, manager for energy and extractive industries at the Washington-based institution, said Tuesday in an interview from a conference in Belo Horizonte, Brazil.
“The big structural adjustment as a response to the decline in prices still didn’t take place as banking credit lines are being renewed,” he said.
Metal prices probably will stay at current levels for the next three years as Chinese demand grows at a slower pace, de Sa said. If the Federal Reserve raises interest rates for the first time in nine years, credit costs for miners will rise, further boosting the need for consolidation, he said.
Mining companies globally announced $65.3 billion in deals in the past 12 months, down from $100 billion in the previous period, according to data compiled by Bloomberg.
Mid-sized companies “may take the lead in mergers and acquisitions or become interesting targets for the more capitalized companies of the sector that are looking for growth that isn’t more exploration or greenfield projects," de Sa said.
For now, prospective targets probably will resist approaches in the hope metal prices and share values will recover, according to Chris Mancini, an analyst for Gabelli Gold Fund.
“Sellers don’t want to sell and buyers generally don’t have a lot of fire power,” Mancini said by telephone. “There are a couple of buyers out there who are going to be trying, but the sellers are very reluctant.”