While mining companies' primary motivation for raising money was to pay down debts and sort out balance sheets in 2016, the market will see more cash-backed deals this year, supported by a recovery of commodity prices, according to panelists at the Mines and Money Asia conference in Hong Kong on April 5.
During a panel discussion on deal-making trends for this year, Matt Fifield, partner at Pacific Road Capital, told the audience that companies who have made profits from the last run of price rebounds are moving into the M&A market this year.
"In the last three to six months, we have seen a series of actions of paying back debts and special dividend [payments]," he said, noting that these moves indicate some companies are not sure what to do with excess cash.
Fifield then pointed to the Australian coal market and the recent attitude toward growth in the sector. "From 2013 to 2016, there was less strategic buying in the sector, especially with less visibility of Chinese players buying."
"But I think it is very much back on, given that coal will remain as the main source of energy for decades to come," he said.
Rod Nichol, managing director of Lionsgate Capital, said on the panel that Chinese authorities' strengthened control over outbound investments has resulted in less capital for domestic miners' overseas M&As.
"But the Chinese are still buying. The [authorities'] capital management will not last forever," he said. "They will loosen up capital controls at some point."
Nichol added that comparably few projects have been moving forward during the past years and this has created M&A opportunities for companies with improved balance sheets and access to capital.
"Some will continue to improve balance sheets but more money will be raised for developments this year than during last year and the year before," he said.
Robert Wrixon, managing director at Starboard Global, a Hong Kong-based natural resource venture capital firm, also believes that the Chinese will remain top buyers for minerals, despite difficulties securing approvals from domestic authorities.
Wrixon added that it is likely to be easier for companies to pursue deals, as equity valuations are higher now than last year.
As for financial options, Wrixon expects the mix to change somewhat. "Debt is perceived as risky but it will still be there. But for those midsized projects, there will be more room for alternatives — convertibles or streaming deals," he said.
Wrixon added that fundraising will also be easier for early stage projects, especially when there are more retail interests in the market.
"High-net-worth individuals are increasingly willing to gamble a bit for projects at an early stage," he said.