Rally sees lucrative deals put on hold
A year ago, corporate activity was decidedly in favour of buyers looking to pick up any of the deals the mining industry had on the table. Collapsing commodity prices and a gloomy outlook for the sector meant that assets on the shaky side of marginal were to be found aplenty.
Fast-forward through 2016 and the recovery in prices for most raw materials, and suddenly many of the sellers who appeared to have their backs to the wall have been offered a reprieve.
That glut of abundant deals appears to have diminished somewhat, although market commentators are still upbeat on the potential for mergers and acquisitions. This may happen as the result of the likes of Anglo American continuing its rationalisation, or other opportunities being offered in the rest of Africa.
“I think that Africa is still relatively unexplored, so it will always be interesting from that point of view,” says Andrew Lane, head of energy and resources at Deloitte. “Miners have shown they can tolerate a lot of risks, and I think the risks they really care about are geology and regulatory stability. Governments are realising that, and understand they need to compete for investment.”
He notes an interesting shift in approach over the recent past that has seen governments becoming more aggressive in marketing their assets.
The rise in prices is important for economies such as Ghana, Zimbabwe, Mali, Tanzania and Zambia, he says, which could once again prove attractive for investors on the promise of improved returns.
Dennis Gibson, chief technical officer for mining at engineering consultancy Black & Veatch, says large miners will keep an eye out for deals as divestment of nonperforming assets continues.
“The focus in the region is on the approach to capital spend, driving productivity and sustainability, particularly in water management, energy use and how to operate more sustainably. This brings in the key opportunity of renewable energy, and how to leverage technology to reduce costs.”
Hanré Rossouw, Head of Resources in Frontier & Emerging Markets at Investec Asset Management, points to corporate activity in the gold sector where the likes of Harmony and Goldfields have been diversifying their operations away from SA.
“It will come down to how companies balance the nonSouth African exposure in their portfolio, which interestingly enough we’re seeing across industries in SA with the likes of Woolies, Steinhoff, Naspers and Mediclinic [increasing offshore revenue exposure]. Companies are increasingly talking about diversifying away from SA in terms of risk, so it’s definitely a trends across SA and not only in the mining industry,” he says.