Executives
Look to Africa for Expansion in 2013
- Executives Split on Their Ability to Access Capital or Credit in 2013
- Africa is the Primary Target for International Expansion across Virtually All Geographies Surveyed
- Investments in Technology and Business Processes to Drive Profitability
The concern over global economic disruptions has left mining executives with mixed feelings about their ability to access capital and credit in 2013. While 37 percent feel that 2013 will mirror 2012, 31 percent feel their ability to access capital and credit will improve, and 32 percent feel it will be worse. Sentiment was similar across all countries.
After ‘global economic disruption’ (44 percent), ‘environmental and regulatory issues’ and ‘geopolitical unrest’ top the list of executives’ concerns at 18 percent each. Executives from the U.S., however, list ‘environmental and regulatory issues’ as their top concerns. This is predictable, as the U.S. government is contemplating new environmental and regulatory programs, parts of which have not been updated since 1872.
“While most commodity prices continue to be near record levels, macroeconomic issues around the globe continue to impact the mining community at large,” says Charles Dewhurst, Global National Resources Leader, Natural Resources industry group at BDO. “As mining companies ride the ebb and flow of commodity prices, they should remain aware that other risks, including the high cost of infrastructure, geopolitical unrest and regulatory issues, challenge the profitability and long-term sustainability of their operations.”
To grow their organizations, 40 percent of executives plan to expand their business through further international expansion, followed by domestic expansion (27 percent) and merger and acquisition activity (23 percent). With limited resources on their shores, the U.K. has the largest focus on international expansion, with 71 percent looking overseas. The U.S. deviates from the collective trend, with 25 percent citing research and development as a preferred means to grow their organization compared to an average of only 10 percent across all countries.
Foreign expansion on the horizon
Collectively, 76 percent of survey mining executives currently have international operations, with an additional 5 percent planning to expand internationally in the next six to twelve months. Those surveyed cite Africa (32 percent) as their primary target for expansion, followed by North America (23 percent) and Latin America (17 percent). Interestingly, each country notes some domestic expansion activity, yet motivations for international development differ between countries.
For instance, South African companies are exclusively looking to expand further into Africa in 2013, while Canadian companies (56 percent) anticipate that North America will be a key component of expansion plans – suggesting that an expansive geographic footprint is a challenge for mining companies. One-third (33 percent) of all executives from the U.S. are eyeing Latin America for future development, almost double the study average of 17 percent.
“A company’s ability to expand internationally will be a competitive advantage as resources become more challenging to mine around the globe,” says Dewhurst. “Yet expansion without properly managing the financial risk and exposure can seriously impact a company’s success. As countries around the globe consider new tax regulations and royalty requirements, it is critical they weigh the risk and reward of expanding operations.”
Mining executives are employing a variety of tactics to enter foreign markets, including joint ventures with local companies (39 percent), acquisitions in the country of interest (31 percent) and independently establishing operations (24 percent). While their strategies for entry into a foreign market differ, there are some commonalities. For example: South Africa (36 percent), the U.S. (50 percent) and Australia (48 percent) prefer joint partnerships, while Canada (40 percent) and the U.K. (44 percent) favor acquiring a company in their target region.
Other key findings from the report include:
- Investments in technology are driving profitability. Across the board, mining executives are placing a stronger focus on the development of internal business processes (65 percent) to drive profitability in 2013. Though new technologies are the second most popular strategy overall at 30 percent, U.S. executives are more heavily focused on investments in technology, with 50 percent of executives anticipating that it will improve their bottom line.
- Private equity cited as primary financing option in 2013. Of those surveyed, 28 percent note private equity as a means to aid business growth across all countries. This is a positive indicator for the private equity market after natural resources funds experienced a slow year in investments in 2012.
- The U.S. is embracing project financing,with 39 percent of U.S. executives citing this as a key financing option. The results follow a recent trend of U.S. banks, including Citigroup and Bank of America, increasing their project financing transactions.
- Demand for resources is the most important factor driving growth for the industry, according to 42 percent of executives surveyed. Access to capital or credit (37 percent) and increased commodity prices (13 percent) rounded out the top three factors for growth.
About the international BDO network
BDO refers to one or more members of BDO International Limited, which form part of the international BDO network of independent member firms (the ‘BDO network’)
Service provision within the BDO network is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels.
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The combined fee income of all the BDO Member Firms, including the members of their exclusive alliances, was $6.02 billion in 2012. The global network provides advisory services in 138 countries, with almost 55,000 people working out of 1,204 offices worldwide
Methodology statement
This is the initial BDO International Natural Resources Study with emphasis on the mining industry. The research was conducted among senior management executives representing a broad mix of companies and geographic areas. Topic coverage was highly diverse including, but not limited to, key drivers of growth for the global mining industry, access to capital and credit, strategies for enhancing profitability, impact of regulations, key targets for geographic expansion and the identification of important threats facing the global mining industry.
This multi-country executive survey was designed and managed by Market Measurement, Inc. in close consultation with BDO. Questionnaire content was in the native language of each country.
The study findings are based upon attitudes, behaviors and perceptions among 132 mining executives with similar levels of representation in the study data across the U.S., Australia, Canada, South Africa, Russia, and the United Kingdom. Study participants were identified through major trade and professional associations, subscribers to industry publications and similar sources. Additional characteristics of this important research initiative include:
- Job titles: More than one-third (35 percent) are the chairman, CEO, president or managing director of the organization, with a similar level of representation from CFOs/controllers/directors of finance (28 percent).
- Geographic coverage: More than three-quarters (76 percent) have international operations.
- Sales revenue: Almost one-half (45 percent) of the participating companies report annual worldwide revenues in excess of $50 million.
Contacts
Bliss Integrated Communication for BDOErin E. Burke, (212) 584-5477
erin@blissintegrated.com
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