Vancouver-based Ernst & Young has taken a look at the value and volume of Canadian mining and metals deals and found them to be down 41% and 26%, respectively. The reasons are twofold: rising capital costs and softening commodity prices.
A look at mergers, acquisitions and capital raising in mining during the first half of 2012 reveals there were 470 global mining and metals deals with a total deal value of US$55.7 billion between January and June 2012, down 19% in value and 38% in volume compared to the same period in 2011.
Increased activity in June points to a return in mining and metals M&A momentum, with deals totalling more than US$10 billion completed and an increase in the first six months of 2012 volumes over the same period in 2011. Strong balance sheets among producing companies, favourable long term fundamentals and lower valuations are creating an attractive environment for opportunistic M&A
"We're already seeing mining and metals companies take advantage of recent changes in market conditions with synergistic deals," said Richard Crosson, partner in E&Y's Transaction Advisory Services practice. "So far this year we've seen 20 megadeals - of US$1 billion in value or greater - completed, up from 15 in the same period last year."
Crosson says the industry should expect to see an increase in mining and metals deal activity around the world in the coming months. M&A opportunities available to well capitalized buyers may spark a shift in capital allocation strategies from build to buy. But prudent buyers will have to invest significant time and resources in deal qualification, due diligence and negotiation to find, access and close on quality opportunities, according to the E&Y report.
Beyond market volatility and geo-political uncertainty, buyers will also need to pay particular attention to key business risks, including resource nationalism and skills shortages, the top two risks identified in Ernst & Young's latest Business risks facing mining and metals 2012-2013 report.
The report is available at EY.com.