Investors should expect further mergers and acquisitions activity in the mining sector over the coming 12 months, according to BlackRock.

The asset manager today issued its annual outlook for the BlackRock World Mining Trust in which it said with commodity prices at higher levels than most management teams expected, cash generation will be in excess of many companies’ requirements.

Evy Hambro, manager of the BlackRock World Mining Trust, explained that this will inevitably lead to companies looking to reinvest into existing projects rather than building new capacity when demand has not fully recovered.

He explained, ‘January has seen a sharp pull back from levels experienced across the base metals and precious metals markets towards the end of 2009.

‘We believe this pull back may have created an opportunity as valuations are now looking more attractive and we would suggest that this provides a possible entry point to the market.

‘While we believe that short term volatility in the sector is likely, stock selection and commodity selection will be key in order to take advantage of opportunities in these markets.’

Hambro’s top ten largest equity holdings within the fund include BHP Billiton, Rio Tinto, First Quantum Minerals and Freeport McMoran.

A £1,000 investment in the investment trust ten years ago would have grown to £6,098, as at the end of January 2010, according to the latest statistics from Financial Express.