Canadian Cos A Focal Point In Mining-Sector Evolution - E&Y
10 10월 2009 - 12:45AM
Dow Jones News
Canada's metals and mining industry has been on a wild ride
these past three years, going from one crisis to the next, what
with capacity contraints between 2006 and 2008 and a credit crunch
during this past year.
But the S&P/TSX Composite index, largely on the strength of
a resurgent resource sector, has climbed from 7,500 in March to
11,500 this week, a move prompted by changing sentiment,
cross-border deals - a number of them Chinese-led - and investors
dipping back into the market.
"The focus this year has been on cost containment, consolidation
and access to capital, and what we're seeing now are significantly
strong signals that sentiment is changing," said Tom Whelan, leader
of Ernst & Young LLP's (EYG.XX) Canadian mining practice. "Is
the buying justified? Absolutely. Is there a sentimental aspect to
this? On certain, individual stocks, yes, but the lower prices have
created a real buying opportunity for investors with longer-term
investment horizons."
He said lower asset prices and a thirst for alternative sources
of capital have paved the way for a number of strategic
acquisitions. A new class of investor - largely Asian mining and
metals companies - has primarily been seizing these
opportunities.
M&A On Rise, Canadian Cos Cross-Border Targets
One only has to look at the recent cross-border deals struck by
Consolidated Thompson Iron Ore Ltd. (CLM.T), Teck Resources Ltd.
(TCK) and privately held Royal Nickel Corp. as evidence that
Chinese companies are using their currency to take strategic
cross-border stakes, in large part to secure access to future
inventory.
Ernst & Young released a report in September outlining the
risks still inherent in the resource sector. While rising commodity
prices are taking the edge off the need for severe cost
containment, there's still the prospect of industry consolidation,
as the haves - those with healthy treasuries - go hunting for
assets owned by the have-nots - companies still reeling from the
credit crunch.
This M&A cycle is in large part going to be fueled by
another risk that E&Y has highlighted: pipeline shrinkage or
the glaring need for new inventory five or six years down the
road.
While some miners, such as Barrick Gold Corp. (ABX) and Yamana
Gold Inc. (AUY), have healthy pipelines of in-house projects, it's
no secret that the drought in risk capital has hurt exploration and
production budgets; the knock-on effect will be felt for a number
of years, Whelan says.
"Again, companies with large balance sheets and cash are
well-positioned to take advantage," Whelan said. "We're expecting a
definite increase in mergers over the next six to nine months;
deals will become a matter of what level of risk, such as
geopolitical risk, companies are willing to take on."
Company Web Site: http://www..com
-Brian Truscott, Dow Jones Newswires; 604-669-1595;
brian.truscott@dowjones. com
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