Signs of life for mining M&A

Wave of mining deals expected this year amid commodity rout — reportGlobal mining deals picked up last year and the trend is likely to stretch over 2015 amid an ongoing commodity price rout that has forced miners to slash capital spending and cut costs, a study released Wednesday shows.

According to SNL Metals & Mining report, 2014 saw 73 acquisitions that were valued at over US$10 million each, totalling almost $22 billion for the year. The figure, considerably higher than the $12 billion registered in 2013, is nothing to be too excited about, the study hints. The reason? 2014's total was the third lowest in the past ten years, with only 2013 and 2009 (US$14.88 billion) being more disappointing than last year’s.

From the report:

For the past few years, mining companies have been cautious with regard to acquisitions, and since 2012 have bought fewer assets that require large capital investment. Instead, companies have opted to maximize the value of assets they already own, and to enter joint ventures that reduce costs while at least maintaining production.

Last year's jump in total takeover value came entirely from the acquisition of base metals assets (copper, nickel and zinc), which rose from 24 deals priced at only US$3.11 billion in 2013 to 29 deals priced at US$13.08 billion in 2014. The total amount paid for gold acquisitions was essentially the same year-on-year at US$8.48 billion, in 44 deals compared with 61 deals in 2013.

The spending of US$13.08 billion on base-metals acquisitions last year was more than three-times the amount spent in 2013. The average cost of these base-metals acquisition in 2014 was US$451 million, compared with US$210 million in 2013 and US$1,170 million in 2012. This increase was almost entirely due to copper, with the spending on nickel increasing by only 4% and zinc acquisitions tumbling 73%.

The copper deals accounted for 23 of the 29 base metals deals and almost 97% of the price paid — US$12.67 billion for 68.5 Mt of copper in reserves and resources. Four nickel deals totalled US$381 million for 2.5 Mt of nickel, and the two primary zinc deals were priced at a total of US$26.2 million for 2.1 Mt of contained zinc. The total price paid in these base-metals takeovers was only 1.8% of the value of the contained metal in the assets acquired, a slight increase over the 1.2% recorded in 2013.

The spending of US$8.48 billion on gold acquisitions last year represented a fall of 3% compared with 2013. The average cost of these acquisitions was US$193 million, compared with US$144 million in 2013. Sixteen of the 44 gold acquisitions were for producing companies and mines at an average cost of US$318 million, compared with an average of US$440 million for the 15 producers acquired in 2013.

SNL Metals & Mining report notes that over a third of last year’s metals and gold acquisitions were executed by Canada-based companies. The analysts value those deals at over US$9.02 billion, representing 42% of the total.

Closely behind Canada came Australia, with 13 deals valued at a total of US$7.52 billion. China came in third place, with seven deals totalling US$1.32 billion.

Image by Ferbies |Shutterstock.com