A recent article published by Bloomberg explains that the recent plunge in commodities prices has forced many big players in the mining industry to cut back on their spending: copper and zinc have decreased in the midst of speculation of an economic slowdown in China, and gold has plunged 24 percent, placing it on course for its first annual decline in over a decade.
With major mining companies focused on reducing debt and improving their balance sheets, mining M&A valued under $1 billion has fallen to an eight-year low.
Bloomberg data reveals that there were only 76 takeovers of mining companies in Q3 2013, with a combined valuation of $1.73 billion. This represents the lowest volume of M&A activity since Q4 2004.
The decline in mining M&A threatens hundreds of exploration and development companies that don’t have revenue, over half of which are based in Canada. Indeed, data compiled by Bloomberg reveals that there were approximately 972 Canadian-based mining companies that reported no revenue in the past year.
Current market conditions will make it difficult for junior miners to survive for long without revenue. While some may be able to raise funds and start production, others will be forced to position themselves for a sale due to lack of capital, an option that will prove difficult in the current mining M&A landscape.