M&A activity will be all the rage for resources in 2021

There is a real energy in the resources sector at the moment and we could be at the start of a commodity super-cycle. There are a few key drivers:

No one can doubt that COVID-19 has fundamentally changed the way the global economy works. Supply chains were quickly exposed, production forecasts vaporized, and expected supply evaporated in days and at the same time demand cratered overnight and if there was demand, supply was either not available or inventory was at the incorrect point in the supply chain.

Whilst remote working is now firmly entrenched, with the anticipated post vaccine decline in COVID-19 cases leading to the removal of travel restrictions, many of these deal teams will be looking to get out and put deals together. There are still commodity assets with reasonable multiples and with rising commodity prices, deals that may have been speculated about may now appear in the public domain.

In 2018 / 2019, the gold sector saw some major mergers between the heavyweights including Newmont-Goldcorp and Barrick Randgold. While we may not see deals of this scale in 2021, with this positive gold backdrop, there are still plenty of deals to be done. Overall, we wouldn’t be surprised to see aggressive M&A this year from the likes of Kinross Gold, Sibanye-Stillwater and AngloGold Ashanti.It is quite clear that stakeholders – including financiers - are facing significant pressure to meet Environmental, Sustainability and Corporate Governance standards.

While there are many players who will be exiting the fossil fuels space in favour of renewables and electric vehicle based commodities, we wouldn’t be surprised to see a bit of a “land grab” for cash flow positive assets in out-of-favour commodities.M&A discipline is critical this time around in this new commodity cycle. There is significant capital available and this leads to a degree of exuberance with commodity producers which historically has not always ended well.

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