Mining Services: What Does It Take To Succeed?

The value of M&A transactions in South Africa's mining sector in the 12 months to June 2024 was over $10 billion (according to PwC's annual SA mine report). To put it in context, that was more than the cumulative total of the five preceding years. Why is there robust deal activity when SA macroeconomic indicators is nothing to write home about? When delving into SA mining, production levels have not trended in the right direction. A more pertinent question at this stage - can the strong M&A activity continue or even improve?

Firstly, the world continues to be obsessed with minerals of the future. Ukraine's minerals deal being a recent example of ongoing efforts by countries trying to secure critical mineral supply. Locally, Saudi Arabia’s Zahid Group continuing efforts to reopen talks with Barloworld shareholders after an initial acquisition offer was rejected, also provides some indication of international appetite for South African assets in this space. 

Secondly, investment in the resource sector over the past 20 years has lagged compared to other sectors to the extent that if investment in resources is not increased significantly, then historic average global growth of 3% will not be sustained in the next decade*.

Thirdly, although sectors like AI or robotics are not synonymous with South Africa, mining has been part of the country's DNA since the diamond and gold rush in the mid-19th century. South African companies have developed significant IP and 'know-how' in this space. Lastly, ESG factors are becoming prerequisites rather than a 'nice to have' for mines, and service providers who are fulfilling these needs are winning business over competitors. 

What does all this mean for mining services companies?

Strategically positioning the business to participate in the critical minerals space might be a good place to start. As evidenced by one of our clients who actively pursued a strategy for two to three years to diversify away from one or two commodities that they supplied to. Besides the ease of being able to portray the growth possibilities from opportunities, the company is well placed to capitalise on. The business, more importantly, also reduced its concentration risk to volatile commodity cycles, which further improved the perceived quality of the business by the buyer universe. If there's one thing the market doesn't like its concentration, whether that relates to the customers, suppliers or product/service offerings (no one likes a one trick pony).

Understand the growth drivers - as an example, one of our clients only supplied to open pit mines. Interestingly, based on data from S&P Capital IQ, the number of new open pit mines that opened in Africa over the last decade were almost twice as much when compared to the decade prior to that. In addition, Africa is expected to see the highest number of new open pit mines in a calendar year coming online in 2025 (clearly mining is not dead). DLI's analysis not only assisted in providing substance to the client's growth forecasts, it also provided strategic value that aided new business development initiatives. That said, it is clear that continued drivers of elevated spending from miners is likely to remain, which in turn will benefit mining services companies.

In relation to the third point mentioned above, it's quite surprising to me that some of our clients in this space are either leaders globally in the niche they participate in, or have an offering that is ripe for international expansion. These reasons, coupled with the low cost of production relative to developed markets, result in many international companies having an appetite to invest in South African companies in this space. 

Mines are demanding more from their service providers. Commercial terms remain important but ESG aspects such as health and safety, waste management and climate change are no longer secondary considerations. A solutions-focused offering by service providers aids in assisting mines to meet various standards required by their investors and are ultimately rewarded by the margins they are able to achieve.

If you are an owner of a business in the mining services space, or are looking for investments in this space, reach out to us to see how we can help you in your M&A journey.

*Based on a presentation by Richard Friedland (founder of Ivanhoe Mines) at the 2024 Mining Indaba.

About Deal Leaders International

Deal Leaders International (DLI) is a boutique M&A advisory firm specialising in helping business owners and executives, with a business EBITDA between R20 million and R300 million per year, engineer their growth-to-exit journey.  

We go beyond traditional advisory services, partnering with our clients to design, execute and optimise strategies that achieve maximum value when selling their businesses.  

Our mission is to empower our clients to achieve outcomes that align with their financial, professional and personal goals while positioning their businesses as highly attractive to the right buyers.  

As the Africa representative of the Pandea Global M&A Network, we offer our clients both local and international expertise and experience. With 69 offices in 34 countries, and over 2500 successfully completed transactions with a combined deal value over €30 billion, DLI offers deep market insights, practical expertise and a results-driven approach to prepare and successfully execute on business growth and exit strategies.