Managing Risks in Acquisitions from Financially Challenged Sellers in the Resources & Energy Sector -
Low Commodity Prices -
After a decade long boom in the resources and energy sector, prices across almost all commodities declined from 2012, with particularly sharp declines during 2015 and into 2016, as supply grew in excess of demand, largely as a result of the slowing growth of the Chinese economy.
Coal prices were among the first to suffer a significant correction, with prices having dropped by about 60 percent over the last 5 years, resulting in over 20 major bankruptcies among US-based coal producers, including the bankruptcy of Peabody Energy, the world’s largest private sector coal producer. Similarly, iron ore producers have had to adjust to a price crash from over US$190 per tonne in 2011 to US$38.50 per tonne in December 2015, as the market struggled to absorb the additional production of approximately 400 million tonnes per annum.
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