Joint ventures expected to play a key role in mining M&A activity: PwC

Miners looking at partnerships, rather than outright takeovers

TORONTO, March 20, 2014 — Deal activity in the mining industry is changing, as a supplemental chapter of PwC’s Mining Deals Report suggests that in the coming year, miners will shy away from outright takeovers and look towards safer transactions, such as joint ventures (JVs).

According to Being strategic in resources: JVs remain key, released today, JVs have taken on a special significance in recent years. This is in large part due to major deal activity moving at a cautious pace, which is a result of restriction in availability of capital and debt finance, increased capital costs for projects, and greater complexity of mining projects in an environment of heightened commodity price volatility. As such, there is a reluctance to commit to either large-scale mergers and acquisitions or major development projects, and an overall sense of risk aversion in the mining industry.

Still, mining companies must continue to look for ways to grow their reserves and secure future production, and this is where JVs come in. By collaborating and advancing projects as part of a partnership, miners mitigate the risks of making a major acquisition on their own.

“JVs allow companies to share capital investment and project risk,” says PwC's Mining Leader for Canada and the Americas. “In an ideal scenario, these arrangements involve each partner bringing particular expertise to manage specific risk elements, and also provide for an allocation of capital that allows each organization to focus on its areas of strength.”

JVs carry risks, but also opportunities
However, while JVs can be a safer way of strategic investment than a major deal, the report notes that there are still potential risks to consider. For example, when entering into a JV, companies run a significant risk that the project will not proceed due to the involvement of two boards. There is a greater potential for disagreement in such situations, which can lead to delays in project planning and execution.

“When a 50/50 JV is formed, there is usually a lot of discussions on who retains the ultimate veto on major decisions such as mine plans, capex spend and capital calls,” says Stephen Mullowney, PwC Canada’s Mining Deals leader. “As there is usually a dilution mechanism, this can lead to potential problems down road if one party is not able to make capital calls.”

Mining companies can minimize these challenges by ensuring that their JV partners are strategically aligned in their objectives and that the conditions, such as financial and technical abilities, provide the right environment for a partnership.

In a JV scenario, miners will often look for partners that are not themselves miners. The report suggests that the industry may see an increase of ventures with different backgrounds, such as sovereign wealth funds (SWFs). These funds are growing their investment in the mining industry, and for a miner looking to retain control of a project, this can be advantageous as SWFs typically retain a minority interest and are more concerned with the return on investment rather than operation of the project.

“While JVs may not have the same ‘star power’ as an outright takeover or a mega-deal, they provide some flexibility and can be an effective alternative for miners in an increasingly challenging climate.” “We expect the JV trend to continue in 2014, as miners continue a pragmatic and measured approach to growth.”

For more information on the 2014 Mining Deals Report, please visit

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