Mining and metals

Capital Confidence Barometer

Key findings

73% expect the sector's deal volumes to improve

72% believe the global economy is improving

68% believe their board to be more focused on capital allocation

47% perceive credit availability to be improving

55% consider growth their primary focus

EY - Capital Confidence Barometer
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Capital allocation and margin improvement is top of mind right now, according to executives surveyed for our October 2013 Capital Confidence Barometer. However respondents believe that the availability of capital is improving, fuelling optimism for growth.

Mining and metals executives have greater confidence in the global economy, supporting a more optimistic capital raising and investment environment.

Additionally, companies are expressing a greater desire to grow, although cautiously, while also paying down excess debt and achieving operational efficiency to improve margins.

“Mining and metals executives are balancing their desire for growth with their strong focus to improve margins and strengthen balance sheets.”

— Lee Downham, Global Mining and Metals Transactions Leader

Key findings of the Global Capital Confidence Barometer:

Economic confidence reaches two-year high

EY - chart showing perspectives on the state of the global economy for mining and metals

Confidence levels have risen dramatically over the last 12 months. This confidence arises from increasingly stable global economics, particularly in mature markets, where GDP growth has largely returned. Confidence of those who see the economy declining fell to 11%, the lowest level in two years.

 
EY - chart showing confidence in credit availability for mining and metals, October 2013

Improvement in credit availability will drive momentum

Smaller companies are experiencing continued difficulty in accessing capital. However, for those with an investment-grade credit rating, the availability of low-cost, long-maturity debt has arguably never been better.

 

Investment intent tops capital agenda

EY - chart showing planned investments for mining and metals, October 2013

Over the next 12 months, 43% of total respondents will use excess cash to generate growth.

The balance of how growth will be pursued is shifting. Six months ago, more than half of our respondents stated a preference to pursue organic growth over M&A, compared to more than 30% this time around. And for those pursuing organic growth, the focus is on existing commodities and geographies where companies are seeking to optimize portfolios by focusing on core operations and flagship projects.

 

Deal volume expected to improve

EY - Expectation to pursue an acquisition

Nearly three quarters of mining and metals respondents expect deal volumes to increase globally. However, they remain tentative about pursuing an acquisition.

During the nine months leading to September 2013, only 537 deals totaling US$96.9b closed. These numbers are down 24% and 22%, respectively, over the same period in 2012. Total deal value, excluding Glencore Xstrata, was US$59.5b, which highlights an even larger drop-off when taking account of this unique deal.

M&A activity across the sector is expected to increase as access to capital and investor confidence improves; however, this is likely to be a gradual change across the sector.

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What is your perspective on the state of the global economy today?

EY - chart showing perspectives on the state of the global economy for mining and metals ×

Please indicate your level of confidence in credit availability
at the global level

EY - chart showing confidence in credit availability for mining and metals, October 2013 ×

If your company has excess cash to deploy, which of the following will
be your focus over the next 12 months?

EY - chart showing planned investments for mining and metals, October 2013 ×

Expectation to pursue an acquisition

EY - Expectation to pursue an acquisition ×