Hedge funds slash bullish wagers on gold over Trump election win
Hedge funds and other large speculators boosted net-long positions by 11% to 197,362 as of Nov. 12, the lowest in 14 weeks.
EY sees mining deals picking up this year.
More upbeat news for the mining sector. After a tough 2013 that saw the lowest number of merger and acquisition (M&A) activity since 2006, experts are seeing a change of gears, with financial investors and equity-backed alternative capital providers beginning to be particularly active in the M&A market.
According to consultancy firm EY’s latest report, anticipated longer term commodity price recovery and the ability to leverage management ability will be pushing M&A deals up in the first half of 2014. The analysts estimate there is a US$10 billion deal capacity across the sector, which will likely materialize in some big deals later this year and in 2015.
EY’s Global Mining & Metals Transactions Leader, Lee Downham, said in a statement that mining investors will continue to focus mainly on low risk jurisdictions, as a way to leverage under-performing assets, using technical, operational and financial influence to generate better returns.
Juniors to wait a little longer
While the best time to undertake M&A is at the bottom of the market, this has not historically proven to be the case. This graph shows little correlation between commodity price peaks (and possibly the timing of decisions) and when deals are completed.
The analysts are also expecting to see a strong appetite from debt providers, with increased competition among banks likely to improve access to leveraged loans for quality mid-tier mining companies and developers.
However, the report notes that given the strict criteria applied by investors, it is still premature to think these funds will be available to support the mining industry’s needs as a whole.
“Risk capital for juniors is unlikely to be available on any large scale in 2014. While the best development projects will continue to attract funding from the increasing pool of private capital, it may take a longer period of sustained commodity prices and cost control discipline across the sector before we see strong investor confidence and IPO markets open for juniors,” Downham said.
“Many juniors have effectively suspended exploration and development activities to conserve cash for survival. Without new capital and new investment, the mining sector may well be sowing the seeds for the next boom as supply falls short of demand,” he added.
Read the full report here.
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