Strong commodity prices and overhauling of balance sheets are set to drive merger and acquisition (M&A) activity in the mining industry. Verdict has conducted a poll to analyse how the COVID-19 pandemic will affect M&A activity and asset transactions in the mining sector.
Analysis of the poll results shows that COVID-19 will increase M&A activity and asset transactions in the mining sector, as voted by a majority 39% of the respondents.
According to 34% of the respondents, the COVID-19 pandemic will not affect M&A activity and asset transactions in the sector, while 27% of the respondents opined the M&A activity will decrease in the mining sector due to COVID-19.
The analysis is based on 135 responses received from the readers of Mining Technology, a Verdict network site, between 11 August 2020 and 01 March 2021.
COVID-19 impact on M&A activity in mining sector
The COVID-19 pandemic led to a 51.6% decline in M&As in the first half of 2020 compared to the previous year, according to GlobalData. Mining deals, however, are projected to pick up in 2021 as supply shortfalls boosted commodity prices and increased miners’ cash reserves.
Miners’ urge to replace the reserves mined will be a big driving force for M&A activity among gold mining companies in 2021, according to Bank of America. Temporary suspension of exploration programmes due to COVID-19 in 2020 made it difficult for the miners to replace gold reserves. In 2021, the gold miners will focus on growing their resources through M&A activity to replace their reserves.
The M&A activity would have been higher in the absence of COVID-19-related travel restrictions. The recovery of M&A activity is expected to vary across sectors, although further consolidation is expected in the long-term as operational costs and environmental and social expectations increase.