* Africa and Latin America to see consolidation
* Mid-caps to lead M&A as majors cut spending
* New investment vehicles expected to buy in 2014
By Stephen Eisenhammer
LONDON, Jan 16 A year of tumbling share prices
and a shrinking pool of funding have left smaller mining
companies vulnerable to the approaches of medium-sized rivals
with cash in the bank and an eye for a bargain.
Investors and executives told Reuters they saw opportunities
for mid-caps and turnaround specialists in regions such as Latin
America and Africa as some small companies, typically those
involved in the capital-intensive early stages of a project,
struggle to secure funding from banks or the market.
The gold sector is likely to see the most M&A activity as
the metal price languishes 25 percent lower than a year
ago, and a number of potential deals are already in the works.
Equities were hit even harder than bullion; the Thomson Reuters
Global Gold Index of 43 gold miners more than
halved in 2013.
Industry insiders said the trend would also spread across
base metals and iron ore. Nearly all junior miners were hit last
year, with the Thomson Reuters index of 144 resources companies
listed on London's alternative market (AIM) down
33 percent in 2013.
"Many of the smaller exploration companies are very short of
cash and may well go under this year unless either new equity is
found or the company is acquired," said Ian Coles, partner at
law firm Mayer Brown who specialises in mining finance.
With the biggest miners under pressure to cut spending and
streamline operations, it is second-tier rivals with spare cash
from strong producing assets that are most likely to drive
"It's a very opportunistic environment ... If it's M&A, it
will be mainly well financed, cash flow-rich, mid-sized
producers that may opportunistically look at projects and
companies," said Markus Bachmann, manager of precious metals and
global resources funds at Craton Capital.
A number of potential deals have already emerged. On Tuesday
Canada's Goldcorp bid for smaller rival Osisko
for $2.4 billion. Last month Asanko Gold agreed to buy
Africa-focused PMI for $173 million, while Centamin's
$37 million offer for Ampella Mining was
recommended by the target's board.
Neil Gregson, manager of the JP Morgan Global Natural
Resources fund, picked out Lundin and
Northern Star Resources as potential consolidators.
As well as Africa, Gregson said he expected Latin America to
see acquisitions, singling out copper in Peru.
"There's quite a few of these juniors around who have copper
discoveries, but when your market cap has gone from $500 million
to $100 million and the capital project is $2 billion you're
never going to be able to finance it, so you have to do a deal,"
he told Reuters.
A LOT OF STRESS
One firm expressing a desire to pick up assets this year is
gold miner Mandalay Resources, which has a market
valuation of $240 million, according to Thomson Reuters data.
Mandalay bought the Challacollo silver project in Chile from
Silver Standard Resources in December for $15.8 million
and is looking for more acquisitions.
"If you're a counter-cyclical buyer, this is a pretty good
time to look at the market place," Chief Executive Brad Mills
"We do see a lot of stress; unfunded juniors, exploration
and development projects that are really stuck. It presents a
good deal of opportunity," added Mills, who was formerly chief
executive of platinum producer Lonmin and now also runs
a private investment vehicle involved in copper, gold, and iron
X2, the new venture of former Xstrata boss Mick Davis, is
also currently raising funds and is expected to purchase assets
this year. On the smaller side of the spectrum, International
Mining and Infrastructure Corporation, which bought
Cameroon-focused iron ore miner Afferro last year, has said it
is looking to make further acquisitions.
David Archer, who built Savage Resources from an initial $1
million of investment into a $350 million business in the 1980s
and 1990s, is now chief executive of Savannah Resources
, which is looking to build a portfolio of assets in
"We are actively evaluating a range of projects and hope we
can secure one in the first half of 2014," Archer told Reuters.
Savannah is eyeing gold and copper along the Nubian shield
on the Western flank of the Red Sea.
"There are certainly distressed companies with decent assets
out there," Archer said.