The value of mergers and acquisitions in the mining sector more than doubled to $96.3 billion in the first six months of the year and could top $200 billion for the whole of 2011 says a new research report.
Canadian companies – both as acquirers and as the targets of buyers – dominated corporate finance activity in the first half shaking on more than a deal a day and at 325 deals accounting for almost two-thirds of all the metals and minerals transactions carried out around the world.
According the Ernst & Young report released on Monday top acquiring country by volume was Canada (196 deals), followed by Australia (83) deals and the top target destination by volume was Canada (129 deals), followed by Australia (72 deals).
Canada’s total mineral production for last year was valued at $41.3 billion, which is $11 billion more than 2009’s production according to government statistics from Natural Resources Canada (NRCan).
In 2010, Canada ranked first globally for the production of potash; second for uranium production; third for aluminium and titanium concentrate production; fourth for elemental sulphur and nickel production; and fifth for platinum-group metals, chrysotile, molyb- denum, salt and cadmium production.
Ernst & Young says thirst for natural resources from rapidly developing economies continues to drive M&A in the mining sector, but the pace of growth in deal-making is being tempered by uncertainty around global macroeconomic issues and resource nationalism concerns around the world.
Total deal value for January—June 2011 doubled compared to January—June 2010, up from US$47.9b to US$96.3b.
There were slightly fewer deals in the same period, with 573 for the H1 2010 compared to 511 to 30 June this year, reinforcing the view that while larger deals are being executed there is still a level of uncertainty around doing M&A given the current macro-economic backdrop.
The number of mining & metals sector IPOs globally was up 30% from 56 in H1 2010 to 73 in H1 2011. Total proceeds from IPOs were up 107% from US$6.3b to US$13.0b, although this is dominated by the US$10 billion Glencore listing.
Ernst & Young’s Global Mining & Metals Transaction Advisory Leader, Lee Downham, says a strong transaction pipeline, the availability of capital and historically low debt levels across the sector suggests M&A values and volume will increase for the remainder of 2011 and into 2012.
Downham says while deal activity is stronger than last year, given the strong environment for M&A not as many deals had been done in H1 2011 as could have been expected. However the pace of deal making has increased in recent months.
“Average mining company debt is at an all time low while cash flow and profitability is at an all time high. With capital increasingly available to the sector, mining and metals companies are in a very good position to do deals,” says Downham.
“However, ongoing Eurozone credit issues, stagnating growth in America, uncertainty around the pace of China’s growth, combined with uncertainty around the spread of resource nationalism is making management wary and it is holding some deals back.”
Downham says while there are signs IPO activity in the sector is also starting to be impacted by the uncertainty and stock market volatility, with some delays in listings due to valuation challenges, the IPO pipeline remains very strong.
“We expect to see a significant number of mining and metals IPOs during the second half of 2011 and beyond.”
Downham says despite the ongoing uncertainties the pace of deal making in the sector is likely to pick up through the rest of 2011.
“The thirst for natural resources in the emerging markets means deals will be done.”
M&A in the mining and metals sector, January—June 2011 also shows more than US$17b in share buybacks on the back of strong cash flows and increased demand from shareholders for returns.