The mining sector has been one of the few bright spots in Canadian M&A since the COVID-19 pandemic drastically changed the landscape for transactions, with several large deals announced and continuing despite the pandemic.
As with other business sectors, mining has been significantly impacted by regulations and the economic slowdown caused by the pandemic. However M&A opportunities for Canadian mining companies have persisted despite these issues.
One of the first significant deals announced during the COVID-19 pandemic was Endeavor Mining Corporation’s combination with SEMAFO Inc., which valued SEMAFO at $1 billion. Other recent deals include Shandong Gold Group acquiring Canadian-based TMAC Resources for $149 million and the Canadian company SSR Mining Inc. merging with Alacer Gold Corp. in a deal with a combined valuation of $4 billion.
The reasons for this sustained activity include, in part, the continued activity of many mining operations despite harsh economic conditions and increased regulations, as well as the strong prices of many metals. During the initial phase of COVID-19-related shutdowns, many mining companies around the world continued operating, including in Canada where mining was deemed essential in key regions such as Ontario and British Columbia. The price of gold has increased significantly over the past year, and the prices of base metals such as copper and iron, which form a significant portion of Canada’s mining sector, have largely maintained their pre-COVID-19 levels despite the decrease in demand caused by the pandemic.
However, this is not to say that Canadian mining M&A does not still face significant difficulties. A recent report surveyed the extensive spread of COVID-19 cases at mining sites around the world, many of which are owned by Canadian companies. This may lead to decreased mining activity and regulatory scrutiny. Importantly, many mining operations have been curtailed as mining companies have seen significant drops in their value and disruptions in their supply chains, parts and consumables. Travel restrictions have limited the ability for companies looking for acquisition targets to conduct on-site due diligence.
Despite these difficulties, relatively strong M&A activity in mining is poised to continue as prices remain healthy and mines continue to operate. As consolidation within the industry is increasingly being driven by investors drawn to larger companies with the resources to more fully exploit their assets and weather the economic uncertainty of the past months, both acquirers and targets should consider strategic combinations in order to access capital to try to emerge from these difficult times in a stronger position than that in which they began, or risk being left behind.
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