Industry Trend Analysis - Price Recovery To Increase Project Finance Options - JULY 2017

BMI View : Miners will benefit from various sources of funding for project finance as mineral prices stabilise and edge higher over the coming years . In particular, improving market conditions will see a return of commercial bank lending to the mining industry, private equity will continue to play a growing role in mining project finance and mining companies will increasingly turn to joint-venture partnerships to share risk. Chinese outbound investment will also drive global deal-making as companies look to secure resources abroad and gain market share.

Recovering mineral prices will prompt a return, albeit a slow one, to global mining deal-making and project development. Improving market conditions will provide miners with a number of more traditional funding mechanisms, such as commercial banks and development or sovereign funds, while a return to positive free cash flow will also allow miners to finance some projects themselves. However, structurally lower prices and continued financial austerity from mining companies will result in lower deal values and premiums than previously seen during the height of the commodity price spike over 2010-2012 and ensure a renewed focus on restraint and caution. For instance, in 2016, global mining merger and acquisition (M&A) and investment activity increased by 47.3% y-o-y to USD66.6bn, yet this remains well below the 2011 total of USD142bn.

Commercial Banks To Return To Metals & Mining, But Coal To Remain Investment Pariah

Structurally Lower Prices To Limit Deal Sizes
Global Mining Merger & Acquisition Value (USDbn) & Deal Count
YTD = year-to-date as of June 8 2017. Source: Bloomberg, BMI

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