TORONTO (miningweekly.com) ? Merger and acquisition activity in...

TORONTO (miningweekly.com) ? Merger and acquisition activity in the mining sector could gain pace this year, and will likely become increasingly competitive, experts from BMO Capital Markets said on Wednesday.

Strategy advisor Don Coxe told reporters that sovereign-wealth funds and government controlled firms are prowling around mining companies for opportunities, while, within the industry itself, consolidation will likely follow the theme of 'big buying small'.

While it may be a difficult task to acquire a publicly listed entity outright, government-controlled companies ? most notably from China - are coming in and taking minority positions in western mining firms.

?They know what their demand is and if they see that these stocks remain really cheap then they are going to try and buy them.?

And sovereign wealth funds are also becoming an important factor, Coxe commented.

?There is no question that these buyers have enormous cash flows, no debt and are accumulating great supplies of American dollars, on which the short-term interest rates are near zero.

?The temptations to take advantage of the bargains in the market place must be nearly irresistible. And so there are buyers out there with deeper and deeper pockets, who also buy what they produce."

When it comes to competition between mining companies, the trend will likely be large producers acquiring juniors, Coxe said.

?It's very hard for big companies to get together because of anti-trust concerns or other concerns of host countries of having that kind of concentrated power,? he said, pointing to BHP Billiton's unsuccessful attempts to acquire Rio Tinto.

Many producers have not expanded their exploration budgets much, and growth pipelines across the industry are not particularly impressive.

?What you are going to see is more and more deals being done for these small mining companies, where a big company can pay up,? Coxe said.

I've had quite a few CEOs tell me: 'look, we're quite content to leave exploration and early development to the small companies?.

In the copper business, the fact that producers have by and large used cash flow in 2009 to improve their balance sheets means that they are well positioned to become more active in pursuing acquisitions, said BMO Capital Markets metals and mining analyst David Radclyffe.

?Companies are definitely out there looking for new opportunities,? he told journalists on a conference call after BMO Capital Markets' Global Metals and Mining conference, which was held this week in Florida.

?The issue is that they are all looking for these new opportunities and we do see that there will probably be some competition for any copper assets that do come up over 2010.?