Mining M& A activity on track for record in 2012
Huge reserves of corporate cash total $ 105 billion
Global uncertainly in 2011 didn’t slow down deal- making among mining companies, according to a new report by consultants PWC, which shows a near- record number of mergers and acquisitions took place last year, most of them in the second half.
Canadian miners led the pack, according to the report, titled On the Road Again. Canadian buyers accounted for 30 per cent of the 2,605 deals in 2011. PWC attributes this to the fact that most mining companies in the developed world prefer to make deals within their own regions. More than half the global number of deals involved junior mining companies.
The total value of M& As in 2011 was $ 149 billion, one third higher than in 2010.
Despite the high number and value of deals in 2011 — second only to 2006 — PWC expects the pace of M& A activity to break all records in 2012, driven largely by the huge reserves of cash mining companies have built up over almost a decade of booming resource prices.
“We anticipate a record year of mining M& A activity ahead, primarily driven by cash- rich seniors and intermediates hungry for new projects,” Tim Goldsmith. PWC global mining leader, states in the report.
The top 40 global miners included in the survey are sitting on $ 105 billion — more than enough money to pay off the Italian budget deficit, PWC states in the report. This new round of deals is expected to be driven by pent- up demand for new projects, coupled with rising production costs and declining reserves in the developed world. Further, demand for metals and minerals continues to grow in the world’s developing countries.
PWC is on fairly solid ground in forecasting a record year. The largest deal ever, a merger of equals between Swiss- based resources giants Glencore and Xstrata proposed earlier this year, would create a single company valued at $ 90 billion.
John Nyholt, Canadian mining deals leader at PWC, raises the concern that mining companies from developed countries may be playing it too safe by making most of their deals with companies within their own region. It may be a barrier to long- term growth, as three- quarters of known mineral reserves are within less- developed countries.
“Developed nations have to ask themselves: What is the long- term cost of not doing more business in these markets,” he said in a news release.
The report also forecasts that sovereign wealth funds, private equity funds and pension funds will begin acquiring mining companies in 2012.
“Competition for deals will be fierce,” the report states.
The funds have generally avoided the resource sector, which requires investments over a period of years and can face regulatory and price risks. But PWC says that as a result of the global financial crisis, private equity and sovereign wealth funds are re- evaluating their approach because of anemic growth in the west, low interest rates and volatile public markets.
“Post- crisis, we have observed some of the world’s leading [ private equity funds and sovereign wealth funds] attempting to figure out how to make mining investment work,” the report states.