Mining, Minerals, and Natural Resources

This sector’s performance is largely a function of production volume and commodity prices. The production volume and sale prices for most commodities have fallen over the past five years, which has led to a significant contraction in this sector. In addition, demand from manufacturers of electrical equipment, electronic products, and jewelry has stagnated or even declined due to high import penetration and input costs. Mining companies will need to focus on product and process innovation to manage cost and profitability to remain competitive as traditional trade flows shift as a result of declining demand from China and global overcapacity.

 

Value of Closed Domestic M&A Transactions ($mm)

 

Sector Performance vs. National GDP

The sector is forecast to resume growing over the next five years. Strong automobile manufacturing and construction activity in the U.S. will increase demand for products in this sector. However, the decline in commodity prices has led to credit agencies downgrading mining companies in the past year. These downgrades have affected the mining companies’ ability to source capital, which has led to severe working capital constraints. As a result, several mining companies have sought to extend payment terms, which have caused banks to decrease overall lending to the sector. This dynamic has increased the perceived risk in the sector, which has led to investors requiring higher premiums for potential transactions. However, a number of recent transactions have been completed with financing from non-traditional sources. The combination of low commodity prices and risk-adverse traditional lenders present an opportunity for new financiers to move into the sector and fund transactions.

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