Collapse in Canadian mining deals in midst of global uncertainty

While 2011 was a near-record year for mining mergers and acquisitions (M&A), with over 2,600 deals worth $149 billion in the global mining sector, 2012 is not looking so good, at least not for Canada. The value of mining M&A tumbled 50% in the first quarter compared to the prior three months, with only one deal over $1 billion, said KPMG in a report.

In the document “Canada takes a breather in Q1 2012”, released today, KPMG says gold accounted for 60% of deal volume and value for the three months ended in March. The authors counted 25 deals worth more than $10 million in the Canadian mining sector, which was comparable to the December quarter’s deal volume, they said.

The largest Canadian transaction was the acquisition of Vancouver- based gold and silver producer Minefinders by Pan American Silver for $1.5 billion. In a far second place KPMG names Xstrata’s $500 million buyout of Talisman Energy’s British Colombia coal properties.

Copper didn’t do any better. Only three transactions were announced in the quarter for a total value of $600 million. The biggest was the $268 million bid by Roman Copper, backed by BayFront Capital Partners, for Romanian-based producer Cupru Min Abrud, said KPMG.

Year of extremes

Yesterday, international consultants Ernst & Young said that while global mining transactions fell sharply in the first quarter, compared with Q1 last year, the appetite for deals remained substantial.

According to that report, the average M&A deal size during the quarter was $130 million, down from $134 million in the first three months of 2011.

“Miners are increasingly unwilling to sit out the volatility and are prepared to act opportunistically and strategically. Robust long-term demand fundamentals and strong balance sheets will drive deal activity through 2012,” global mining and metals transaction leader Lee Downham said in a release.

He added that 2012 is emerging as a year of extremes, with a greater number of megadeals in the first quarter compared to the same period of 2011, but with a poorer average deal size due to the smaller dimension of the majority of transactions.

Ernst&Young is more positive about Canada’s performance than KPMG, as the country was the highest ranked in its report in terms of activity driven mainly by junior explorers.

The second most targeted country was China, although the majority of those deals were domestic transactions, spurred by consolidation activity, said Ernst&Young.

The consultants concluded there was some cause for optimism, particularly with the $90 billion merger of Swiss commodities trader Glencore and coal giant Xstrata still in the pipeline for 2012.