Appetite for mining and metals deals remains strong
While continued economic and market uncertainty saw global mining and metals deal volume and value decrease by 34% and 20% respectively year over year, a strong pipeline of M&A reveals a renewed appetite to do deals. In fact, mining and metals companies completed 10 megadeals — deals over US$1billion — in Q1 2012, twice as many as in the same period in 2011, according to Ernst & Young’s Mergers, acquisitions and capital raising – Q1 2012 update.
These M&A results paint a picture of extremes throughout the industry as deal activity continues to take place at both ends of the transaction scale. The number of megadeals reflects the scarcity of large, quality assets and fierce competition for them, while the large number of smaller deals reflects an increasing interest in exploration projects. In the first quarter we saw a large number of smaller deals — the average deal size for the quarter being US$130 million, down from US$134 million in Q1 2011. — The IPO landscape saw similar year-over-year declines. The number of mining and metals listings globally for Q1 2012 was only 17, just over half of the 31 IPOs seen in Q1 2011 and down from the 28 listed in Q4 2011. This substantial decrease reflects the ongoing difficult conditions in equity markets, a trend seen globally across all sectors, not just mining and metals.
While the Toronto Stock Exchange and Australian Stock Exchange accounted for the most deals by volume, mostly junior exploration listings, the Hong Kong Stock Exchange hosted the two largest listings, Xiwang Special Steel and Kinetic Mines & Energy, accounting for 83% of total Q1 2012 IPO deal value.
Canada is fast becoming a go-to destination for mining and metals transactions as companies around the world look for a secure and stable environment amid ongoing market and political volatility. In Q1 2012, Canada regained its position as the top ranked target destination by total deal value, with the majority of deals being small domestic transactions targeting junior explorers and mineral properties. China was the second most targeted destination, as well as the largest acquirer by deal value, with the majority of Chinese deals being domestic transactions primarily driven by consolidation activity.
Low valuations in today’s uncertain environment should be and are attracting investor interest. Global mining and metals companies are unwilling to postpone their growth agenda; many are prepared to act opportunistically and strategically. Over the next three quarters, companies can expect to see M&A decisions driven by the need to secure raw materials, increase penetration in growth markets, achieve greater vertical integration and consolidate market share. So while short-term uncertainty continues to unsettle the market, long-term fundamentals, such as demand from emerging markets, will support Canada’s mining and metals sector. Fitter and faster companies with strong balance sheets will be best placed to act on opportunities and drive their capital agendas this year.
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