Once again Canada leads worldwide mining M&A

Takeovers and mergers in the global mining sector has slowed radically this year as a result of lower commodity prices, but Canadian companies continue leading worldwide mergers and acquisitions, suggest PricewaterhouseCoopers’ report released Thursday.

The new Mining Deals study shows global mining M&A deal volume fell more than 30% in the first half of 2012 to 940 transactions, as compared with 1,371 transactions for the same period in 2011.

The total value of deals for the first six months of 2012 was $79 billion, slightly higher than $71 billion for the same period a year earlier, which includes Glencore’s $53.6 billion offer for Xstrata. Excluding that blockbuster deal, the total value of deals announced in the first half of 2012 drops to $25 billion, one-third of last year’s first half-year total, and reflecting the market downturn.

“Even though market anxiety has led to a pullback in equity financing, most miners are in much better financial shape than during the 2008-2009 global financial crisis, and wiser having gone through it,” says John Nyholt, Canadian Mining Deals Leader, PwC. “With market conditions expected to remain tight for months to come, miners are looking for new ways to ensure future growth. M&A activity in the coming months will be spurred on by both opportunity and survival.”

“These alternative strategies include companies with cash taking advantage of depressed prices to buy smaller rivals considered too expensive only a few months ago.  Others may choose to sell an asset, or group of assets, to raise funds to advance another project,” he adds.

Golden deals

Gold deals dominated M&A transactions in the first half of 2012, re-establishing its first-place position against other metals such as copper and coal. They represented the highest value of transactions at 26% in the first six months of the year and the highest volume at 29%.

PwC predicts that more gold transactions will take place because of lower valuations, a rising commodity price and the growing challenge to find new resources to fuel future growth.

In addition, China’s demand is still strong despite its stunted growth. “Rapid infrastructure growth in emerging nations, in particular China, will continue to drive demand for commodities such as copper, coal and iron ore,” says Nyholt.

The report adds that along with urbanization in other emerging nations such as India, Brazil and next Africa, this growth will allow the super cycle to continue for years to come.

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