Despite a wobbling global economy, the mining sector stands to see a resurgence in 2009 through reduced inventories and strong global infrastructure spending, according to a report recently released by Ernst & Young.
In "2008: The year when cash was king," the advisory services firm anticipates that the shutdown and suspension of higher-cost mines, alongside various production cuts, will lead to a sharp reduction in inventories.
As much as $3 trillion in stimulus packages announced across many countries over the last few months have an average 30-40 per cent focus on infrastructure. More than 70 per cent of China's stimulus package is weighted towards metals-intensive infrastructure spending.
While financing issues will likely prevent too many large-scale deals from going through in 2009, the report still expects from $2 billion to $10 billion in "megadeals" by "the cashed up mid-tiers."
Large and successful exploration companies will also prove attractive acquisitions to even larger firms looking to secure long-term reserve bases.
Flush with cash, China-based companies and state-owned enterprises are leading the market in acquisitions. Canadian firms in particular are prime targets, the report says, as the nation has no shortage of troubled companies looking for cash.
In 2008, cross-border deals led by Chinese miners and metals producers grew by 1,659 per cent.
The report further anticipates that a swell of such deals will likely occur towards the end of 2009 as a result of "the inevitable string of players who will go into bankruptcy" as well as mounting financing obligations will find others selling off on their own terms.
Such obligations grew significantly through 2008, when the number and value of loans to the mining and metals sector increased over 2007 totals.
In 2008, the number of loans reached 268 with a value of $171.7 billion, up from the 83 loans seen in 2007 worth $110.7 billion.
