Industry Trend Analysis - Price Stabilisation, Prime Asset Sales To Attract Investors - JUNE 2016
BMI View: Brazil ' s mining sector will garner increasing investment, merger and acquisition as mineral prices will begin to stabilise and major producers look to sell core assets in a bid to reduce debt loads over the coming quarters.
Brazil's mining industry will see elevated investment, merger and acquisition (M&A) activity over the coming quarters, supported by a combination of vast mineral reserves, debt-burdened major producers whom are keen to offload assets and stabilising mineral prices. While mining deals will pick up globally, due to metals' strong Q116 price rally and general stabilisation over the coming quarters, Brazil's sector in particular will see a number of high-value deals, as overleveraged producers are forced to sell high-quality assets. For instance, in Q116, leading iron ore producer Vale reported total debt of USD31.4bn. Rising private sector debt in Brazil as a whole will dampen the economic growth outlooks, with firms prioritising servicing existing obligations over expanding capacity ( see: 'Run-Up In Private Sector Debt Will Pose Headwinds To Growth', May 19). In 2015, Brazil's corporate sector debt reached up to 50.1% of GDP, compared to previous highs of only 30.9% in Q108, post-financial crisis.
M&A will pick up following miners' strategies to offload assets in order to lessen debt loads. As of May 23 2016, mining investment and M&A in Brazil already surpassed the total value in 2015, reaching USD1.6bn, compared to USD1.4bn the previous year. Over this period, China Molybdenum's USD1.5bn purchase of Anglo American's niobium and phosphate unit, announced in April 2016, is the largest deal, accounting for nearly all of Brazil's mining M&A thus far. The deal reflects a significant milestone in the latter's restructuring scheme ( see: ' Anglo ' s Plan, Only The Next Stage ' , February 17) and the former's ongoing efforts to secure raw materials abroad. This deal follows on other majors' strategies to offload assets in order to increase profitability. For instance, in February, Vale announced a plan to sell approximately USD10bn of core assets over the next year and a half, to shore up its balance sheet.
|Key Assets To Attract Investment|
|Brazil - Mining Investment, Mergers & Acquisition (USDmn)|
|Note: 2016 data accurate as of May 23. Source: Bloomberg|