London - Analysis from leading global law firm Mayer Brown highlights that the mining sector is set to see modest growth in 2014, with a handful of areas improving on 2013 activity. The firm notes that a combination of smaller exploration companies in need of equity and consolidators who will make acquisitions in certain areas of Africa, could lead to M&A activity, regardless of declining metal prices.
Political situations and regulations
Mayer Brown notes that changes to political situations and regulations globally will also impact on investor confidence and levels of activity. Areas to watch include:
The firm also notes that there will be some activity in the gold mining sector, particularly in countries like Ghana, Mali and Burkina Faso. In 2013, there was approximately US$10.1 billion of deals involving gold products, although this is lower than in 2012. Regardless of what happens with the gold price, activity in 2014 will be driven by junior companies requiring financing.
Tungsten is also highlighted as a commodity to watch. As demand gradually outweighs supply, we could see more production in Europe. Although China has been producing approximately 80% of global tungsten supply, the introduction of restrictions on tungsten export could create new opportunities for the development of tungsten projects in countries like the UK, Spain, Zimbabwe and Rwanda.
Ian Coles, global head of Mining at Mayer Brown, commented: "Due to volatile commodity prices, mining companies globally are still trying to navigate themselves through a period of difficult conditions. But there are pockets of activity. For example, we expect to see significant investment in West Africa, particularly focusing on iron ore and gold. Some of the projects are still in early stages of development but countries like Sierra Leone and Guinea could start to show encouraging signs of growth this year.”
Whilst not a new issue, one of the big obstacles for 2014 in securing finance will be the credibility of the management team as lenders and investors require proven track record of getting projects up and running.
Ian says: “The ability to raise funding through traditional means has diminished considerably and so companies are having to source funds through more creative means such as strategic partnerships, royalty agreements, convertible loans and earn-ins. 2014 will see more of this as alternative sources of equity finance, particularly as for the exploration end of the spectrum continues to be a challenge.”
He notes that the majors will continue to have access to large corporate banking facilities which are premised on mature projects and secure cash flows whilst smaller companies attempting to develop projects will have to rely on more complex and varied financing structures.
Mayer Brown’s global mining group works throughout the world, advising clients on a wide variety of transactions, including project finance, environmental, corporate, construction, insurance and commodities matters. For more information, see here.
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