Mining – digging deeper

Cyclicality is nothing new to executives in metals and mining. Speculation and demand have driven hard commodity prices upward throughout history. While the recent recession forced a brief, albeit significant drop in pricing, today's prices have largely recovered.

Headlines around the world focus on gold at $1500/oz and a 33% increase in copper prices since January 2010. As a result, global mining companies are flush with cash to invest. However, the most recent demand for hard commodities has been driven by emerging global economic powers, such as China and Brazil. With China's growth stabilising and Brazil's government taking active steps to minimise inflation, mining executives and investors are wondering if today's prices are here to stay…or are they indicative of inflated asset prices?

Metals and mining transactions in 2010 were well above the $100 billion mark, and transactional activity is largely expected to increase throughout 2011, as high commodity prices support mergers and acquisitions in the sector. Larger, more developed mining companies are also looking to acquire smaller exploration companies as an opportunity to acquire resources. As competition for natural resources stiffens, especially for commodities such as copper and uranium, prices and premiums paid for these resources will likely increase accordingly, bringing the importance of due diligence on these assets to the forefront of a successful growth strategy.