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Junior miners will sell assets to raise funds in 2013: KPMG

Keywords: Tags  mining companies, junior miners, asset sales, M&A, mergers and acquisitions, KPMG, Rama Ayman, claire hack

LONDON — Small mining companies will look at strategic divestitures of assets in an attempt to raise funds in 2013 and beyond, according to KPMG LLP partner and head of global metals and mining in corporate finance Rama Ayman.

Ayman, who was named to the position earlier this month, said that junior miners in particular will require "creative solutions" to secure the funding they need as traditional sources of financing dry up.

"It will take longer to negotiate deals and it will be more difficult and challenging as buyers are more selective. Also, the number of buyers will not be as high as previously," he told AMM sister publication Metal Bulletin. "The buyers will know that there is less competition and will take longer to assess the value of a project and with due diligence."

Nevertheless, merger and acquisition (M&A) activity is likely to increase as mining companies look less at spinning off assets and more at selling off non-core parts of their business.

According to Ayman, these "big buyers" comprise four distinct groups: large Chinese trading and metals companies, large trading houses based elsewhere in Asia and in Switzerland, sovereign wealth funds and captive funds developed by wealthy individuals or groups.

"I see these four groups as being the main buyers in 2013 and 2014. Of course, traditional buyers will be there as well—they will always look to acquire interesting new assets," he said.

But while Ayman expects M&A in the mining arena to be "very active" in 2013, there will be some challenges, particularly when it comes to agreeing on final sales prices. "I think 2013 will be a very active year for M&A, but I also think certain deals will be harder to close," he said. "The bid/ask spread is going to increase because sellers might think recovery is around the corner, but buyers might be more cautious and expect lower demand and lower commodities prices for the medium term."

Bridging that gap between bid and ask prices will be key to negotiations in 2013 and 2014, he added.

A version of this article was first published by AMM sister publication Metal Bulletin.

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