Perspective on Mining Deal Activity: Let the Gains Begin
Mergers and acquisitions (M&A) are a consistent part of the mining landscape, as explorers are swal-lowed up by those who couple opera-tional capabilities with a desire to contin-ue growing their resource base.
According to the 2009 PricewaterhouseCoopers (PwC) Mining Deals report -an annual review of global M&A activity in the mining industry -mining deals last year saw significant decreases in values and also changes in the characteristics of buyers and sellers. The main driver of M&A appeared to change from buyers looking to grow, to sellers look-ing to shore up balance sheets or survive.
A matter of survival
As expected, mining M&A in 2009 felt the impact of the global economic downturn. Sellers were acting largely through neces- sity to strengthen their balance sheets. This was particularly so where viable capital raising options had been exhaust- ed in the name of survival, rather than in seeking expansion and development. As the debt markets contracted in late 2008 and into 2009, buyers were limited to those with the financial capacity, and those who continued to take a long term view on the resources sector.
In addition, significantly lower deal values driven by lower asset prices and an absence of “mega deals,” resulted in the total value of mining deal activity halving from 2008 levels. While the number of deals actually increased by 16%, the aver- age deal value plummeted from US$124 million in 2008 to US$52 million in 2009 as smaller deals were made.
In hindsight, last year was perhaps a rare opportunity for buyers. We may have seen some of the cheapest mining trans- actions that will occur for some years. Indeed, 2009 could be the year of missed opportunity as most buyers were unable to capitalize on the low prices due to strained balance sheets, conservatism, caution and surprise as to how rapidly the global markets recovered.
China “going global”
Like 2008, 2009 saw deal activity centred in North America and Asia-Pacific, but driven by Canada, China and Australia.
The fallout from the global economic downturn continued to pervade the rest of the world so there was significantly less competition for the Chinese when they were vying for mining assets. This enabled more China “going global” deals than ever before and demonstrated China’s contin- ued desire to seek assets offshore. Chinese acquisition activity accounted for three of the top 10 deals by value in 2009 (7.4% of all deals), compared with only one of the large deals in 2008.
China is not a new buyer of global mining assets and they have become increasingly important as buyers. However, some countries remain tentative in welcoming Chinese investment. By year’s end, competition from many other nations, and a broader cross section of Chinese buyers, has made the competitive landscape very different for 2010.
Looking ahead
Going forward, we expect a “blockbuster year” for mining sector M&A as capital from recent financings is deployed ahead of expectations of rising commodity pric- es. Specifically, we expect: a steep uptick in deal values, a tepid resurgence of >$500 million deals and a moderate shift in China’s focus away from outright acquisi- tions of Canadian projects.
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