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

For the past several years, many BC 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 and copper—brightening economic prospects and a growing need for metals and minerals to help the world transition to a low-carbon economy, BC 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 among BC mining companies

For many BC mining 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 CEO Survey reflects the outward orientation of many companies, with a significant number of mining executives considering merger and acquisition (M&A) activities.

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. We expect many deals to include BC-based companies.

 

 

%

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

PwC’s 2021 CEO Survey

Diverse approaches to expansion

After a busy year for M&A activity in the BC mining sector in 2020, we expect to see more consolidation, particularly among mid-tier companies pursuing smaller transactions that should give them more access to capital. We’re seeing a number of strategies at play among BC miners, with some pursuing joint ventures and others using M&A activities as a way to diversify their businesses into other regions.

Other approaches to growth include royalty and streaming deals, which can be a good option for producers looking 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 the traditional initial public offering.


The road to value creation for BC miners

All of these trends point to an exciting new era for BC miners looking at their long-term prospects. Our province has the potential to attract significant interest given its rich resource base, status as a safe jurisdiction and stable political environment. It also has a highly skilled workforce and is located close to Asian ports, where demand for metals is strong. 

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, BC 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 account 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 BC mining 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, BC miners can better decide what the future looks like for them and find the right path forward for their business.

 

Contact us

Mark Patterson

Mark Patterson

BC Mining Leader, PwC Canada

Tel: +1 604 806 7160

Michelle Grant

Michelle Grant

National Deals Leader for Energy, Utilities, Mining and Industrials, Partner, PwC Canada

Tel: +1 604 806 7780 ext 7184

Lauren Bermack

Lauren Bermack

National Deals Mining Leader, PwC Canada

Tel: +1 416 815 5323

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