The mining industry may soon experience an increase in merger and acquisition activity, especially with overhauling of balance sheets and strong commodity prices, according to a recent poll.
Verdict carried out a poll that analyzed how the coronavirus pandemic, which impacted different sectors and many economies around the world, will affect M&A activity within the natural resource sector. An analysis of the results from the poll show that the coronavirus pandemic will grow M&A activity in the natural resources sector, which 39% of the poll respondents agreed upon.
Of the remaining 61%, 34% of the poll’s respondents were of the opinion that the coronavirus pandemic would not influence asset transactions and merger and acquisition activity in the mining sector while the remaining 27% suggested that merger and acquisition activity would decrease in the natural resources sector as a result of the coronavirus pandemic.
This analysis is based on 135 responses submitted by readers of Mining Technology, a network site owned by Verdict. The responses were received between August 11, 2020, and March 1, 2021.
In addition to this, GlobalData found that, compared to the first half of 2019, the coronavirus pandemic brought about a 51.6% drop in merger and acquisition activity in the first half of last year. Despite this, projections show that mining deals will recover this year as supply shortfalls boost miners’ cash reserves and increase commodity prices.
Bank of America suggests that miners’ urge to replenish the reserves mined will be a huge driving force for merger and acquisition activity among gold mining firms in 2021. The coronavirus pandemic resulted in restrictions being imposed around the globe, which halted operations in many sectors, with mining being one of the affected sectors. Apart from the suspension of mineral extraction and processing operations, the temporary halt in exploration programs made it more challenging for miners to restock gold reserves. This year, however, gold miners will be focused on growing their resources through merger and acquisition activity in a bid to replenish their reserves.
The transportation industry was also affected by the pandemic, with travel restrictions being put in place to contain the virus spread. In the absence of these restrictions, the M&A activity would have been greater.
While more consolidation is expected in the long haul as social and environmental expectations and operational costs rise, the recovery of merger and acquisition activity is expected to differ across sectors.
One mining company that is unlikely to see financially stress to the extent of being forced into an M&A deal is Energy Fuels Inc. (NYSE America: UUUU) (TSX: EFR). The company specializes in the extraction of uranium and is poised to be one of the biggest beneficiaries of U.S. federal government funding aimed at facilitating the cleaning up and recovery of usable uranium from Cold War era mines, which are no longer in operation.
NOTE TO INVESTORS: The latest news and updates relating to Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) are available in the company’s newsroom at http://ibn.fm/UUUU
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