Resource sector ripe for consolidation

Financial Journalist
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Key points

  • The resource sector badly needs consolidation. The mining boom inevitably led to a rush of junior explorers raising capital and listing, and an even wider gulf between small- and mid-cap companies.
  • Predators like to swoop on quality assets like South32 that can become significantly more efficient, before those gains are in the valuation.
  • Independence Group chose to add more nickel to its portfolio through the acquisition of Sirius, but its ambition could extend to neighbour Gold Road Resources.

Nobody knows for sure how China’s economy will slow or when the commodity-price rout will end. But one certainty from the resources carnage is a spike in mining takeovers.

Conditions are ripe for sharply higher mergers and acquisition (M&A) activity across the sector. Key commodities are trading at near 10-year lows, valuations for many resource companies have been slaughtered, and a lower Australian dollar will attract offshore predators.

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