Value of Canadian mining and metals deals almost halved in 2012

The value of Canadian mining and metals deals dropped a dramatic 43% for the first nine months of 2012, revealed Wednesday the latest report by Ernst & Young.

The twice-a-year Global Capital Confidence Barometer: Mining & Metals survey found that cost inflation, slowing economic growth, increased geopolitical risk and volatile prices have shifted companies' focus from growth to cost reduction.

“Our survey results reveal that only 38% of companies, down from 53% in April, are focused on growth in the next 12 months, while 27% are refocusing on business fundamentals, including cost reduction and operational efficiency,” says Bruce Sprague, Ernst & Young’s Canadian mining and metals leader.

He added that nearly a third of survey respondents identified cost reduction and operational efficiencies as key priorities over the next year.

But not everything looks grim in the Ernst & Young survey, as the researchers found that confidence in doing deals is growing, with 28% of survey respondents expecting to pursue an acquisition in the next year, compared with just 18% in April.

"Expect to see companies move away from diversification and toward synergistic deals that create economies of scale and take advantage of low valuations across the sector," Sprague says.

Companies responded that they would be looking at smaller deals and strategic partnerships, as firms manage pressure to generate returns on investment, especially in light of recent cost overruns and integration issues.

"While many companies are refocusing on efficiency and cost control, risk management and capital allocation, new transaction opportunities exist for those with strong balance sheets – opportunities that few can afford to miss out on in an era of intense global competition for resources," says Sprague.

Today’s report is the seventh twice-yearly Barometer published by Ernst & Young since November 2009.