Outside money starts to pour into mining M&A

Report: Outside money starting to pour into mining M&A

Mick Davis hasn't spent a cent of his $6bn, but private money and non-mining players' share of M&A has already doubled in less than three years.

In 2014 the number of mergers and acquisitions in the mining and metals industry doubled from the year before according to data from research company SNL Metals & Mining.

It was far from a bumper year though. At $21 billion deal values were less than half 2012's tally according to the authors of the report Nick Wright and Mark Ferguson.

It also pales against the heady pre-financial crisis days when mining M&A came within shouting distance of the $100 billion mark.

The uptick last year over 2013 was largely thanks to renewed interest in base metals as gold sector deals were mostly flat. And acquirers were also willing to pay more for copper, zinc and nickel.

The total price paid in base-metals takeovers was 2.2% of the value of the contained metal in the assets acquired, much better than the miserly 1.2% recorded in 2013.

But it's also a far cry from 2006–2007 when acquirers priced metal still in the ground at 11% – 12% of its sale value.

While these kinds of numbers could be expected given current industry conditions there's been another big shift underway in the mining M&A market.

Mining has never been able to attract much outside capital. The vast majority of deals have always been miners buying mines.

Report: Outside money starting to pour into mining M&A

Source: SNL Metals & Mining

But SNL's research shows that's now changing.

Of the 73 deals in the gold, copper, zinc and nickel sectors with a value of more than $10 million last year, 36% were made by non-mining companies – entities such as governments, manufacturers, smelters, financial companies, as well as private equity groups.

That's a doubling of the share of non-mining players which accounted for only 17% of M&A transactions in 2011.

In terms of the value of deals, private equity, governments and other industry acquirers still lag behind however.

Report: Outside money starting to pour into mining M&A

Source: SNL Metals & Mining

Apart from the fact that these transactions involve less paper, the discrepancy can also be ascribed to the fact that these deals – particularly when involving captive supply or vertical integration – tend to be highly targeted and therefore generally smaller.

That could change too.

Mick Davis showed that it is possible to cobble together almost $6 billion in private money over a short time and the founder of X2 Resources has promised some of that money will be spent this year.

And that could really set the ball rolling for outsiders who may have steered clear of the sector in the past.

Report: Outside money starting to pour into mining M&A

Source: SNL Metals & Mining