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How a value creation mindset can help Canadian miners make the most of the M&A opportunity

For the past several years, many miners have focused more on survival than strategic growth amid persistently low commodity prices. But in the current environment of higher prices—including a positive long-term outlook for gold—brightening economic prospects and a growing need for metals and minerals to help the world transition to a low-carbon economy, Canadian miners have a fresh opportunity to reset and refocus on their long-term strategies.

The question mining companies should be asking now is how to best unlock the value of their businesses. For many, this will require a blend of strategic positioning, performance improvement and asset optimization to increase value. To be successful and sustainable, miners should begin with a strategic plan that embeds a value creation mindset aimed at achieving their longer-term potential.

A renewed focus on M&A

For many companies, the strategic path forward will include a renewed focus on growth after a decade of low commodity prices and reduced access to capital. While this reduced the ability of many miners to advance exploration and development projects and make acquisitions, they’re now facing pressure to invest in expansion and replenish their reserves. Our 2021 global CEO Survey reflects the outward orientation of many companies, with a significant number, 35%, considering merger and acquisition (M&A) activities.

We also saw a keen interest in M&A activities at our recent Mining Minds events, where survey questions posed to Canadian mining executives in attendance explored their approaches to deal opportunities. For example, a majority (56%) said M&A activities are a significant part of their company’s strategy.

 

 

%

of global mining and metals CEOs are considering M&A activities in the next 12 months

PwC’s 2021 CEO Survey

M&A considerations for Canadian miners

Some companies are looking to buy new assets or entire companies, while others are considering divesting holdings no longer considered core to their operations. For those looking to expand and diversify their product mix, we’re seeing some producers move into complementary metals. Companies will also pursue deals to better position themselves for the low-carbon economy by acquiring projects that produce metals like copper, nickel, and lithium.

But rising levels of geopolitical uncertainty in other jurisdictions where they have mine operations are an important factor in M&A decisions for mining companies headquartered in Canada. At a time of high commodity prices, some foreign governments are looking to capture a greater share of profits by increasing taxes and royalty rates and making other policy changes. Mining companies need to assess these risk factors given the potential impact on company valuations and the timing of deal activities.

Diverse approaches to expansion

Many of these trends point to continued consolidation after a busy year for M&A activity in the Canadian mining sector in 2020. We’re seeing a number of strategies at play among miners, with some pursuing joint ventures and others using M&A activities as a way to diversify their businesses into other regions. When we asked Canadian mining executives at our Mining Minds events about the regions they’re focusing on when looking at acquisition targets in the coming months, North America topped the list at 57%, followed by Latin/South America (24%), Australia (9%), Africa (8%) and Europe (2%).

Other approaches to growth include royalty and streaming deals, which can be a good option for producers looking to unlock value for byproduct metals or to raise capital without putting debt on their balance sheets or diluting existing shareholders. Increased investor interest in the mining sector is also raising prospects for miners to go public. One path to going public is through special purpose acquisition companies (SPACs), which look to acquire a private company without going through a traditional initial public offering.


The road to value creation

These trends are signs of an exciting time for miners looking at their long-term prospects. Canada has a reputation as a mining-friendly jurisdiction, and we expect deal activity to remain strong across the value chain as companies look to capitalize on higher commodity prices or divest from carbon-intensive assets and as new opportunities emerge in battery metals and critical minerals.

But to truly make the most of these opportunities while avoiding the mistakes of previous bull markets that saw companies pay too much for assets and take on excessive debt, miners need to embed a value creation mindset into their strategic planning process. This includes looking at four key levers for creating value in a company:

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Strategic positioning

This requires companies to be clear about their portfolio and make sure it aligns with their strategy. It includes considering which assets are core to the business, the jurisdictions they operate in, their social licence to operate and the timing of development opportunities. Acquisitions or divestitures are one way to better align the portfolio with the company’s long-term strategy.

Performance improvement

This is where technology and efficiencies come into play and includes looking at human capital, supply chain management, process improvements and asset management strategies.

Asset optimization

This is about making sure the company’s structure is efficient from a balance sheet, capital and tax perspective.

Impact and purpose

More than ever, companies need to make sure they’re aligned with all of their stakeholders and take all of the macroeconomic forces into effect as part of their value creation plans. This includes looking at environmental, social and governance (ESG) factors when considering strategic moves like an acquisition. With the rebound in commodity prices, mines with a higher cash cost may still look attractive when considering other value-enhancing attributes, such as ESG factors.

Envisioning the future

Each of these elements of value creation complements the other, which is why it’s important to have a strategy to make sure they fit together as the company plots its future. Essentially, the key question at the heart of this process is: Where is the organization going in the long term?

While many companies will look to acquisitions, others will be aiming to position themselves for a sale or to be the best operator among their peers in the business even if they remain small. By taking a value creation mindset, companies can better decide what the future looks like for them and find the right path forward for their business.

 

Contact us

Kevin Chan

Kevin Chan

Chief Inclusion & Diversity Officer, PwC Canada

Tel: +1 416 941 8321

Michelle Grant

Michelle Grant

Deals Energy, Utilities, Mining and Industrials (EUMI) Leader, Partner, PwC Canada

Tel: +1 604 806 7184

Lauren Bermack

Lauren Bermack

National Deals Mining Leader, Partner, PwC Canada

Tel: +1 416 815 5323

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