Mining and metals M&A: confidence up but deals lag

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Thursday 9 May 2013 — Mining and metals companies are more confident in the global economic outlook than six months ago but remain cautious when it comes to pursuing acquisitions, according to EY’s latest six-monthly Capital Confidence Barometer – Mining & Metals, released today.

The report is based on a survey of 193 executives from mining and metals companies worldwide, from a broader survey of 1,600 executives from 50 countries undertaken in February and March 2013.

Mining and metals respondents are more optimistic about the global economy than six months ago, with 57% viewing it as improving, compared with 21% in October 2012.

Encouragingly, growth is the main focus for 44% of companies in the sector, up from 38% six months ago, and 46% view credit availability as improving, up from 30%.

However, despite the more positive sentiment, M&A appetite remains subdued, with 24% of respondents intending to pursue an acquisition in the next 12 months, down from 28% in October. The findings are consistent with Q1 2013 M&A data for the sector globally, with total deal value down 45% year-on-year to US$16.3b and deal volume down 35% to 168 deals.

However EY’s Oceania Mining & Metals Transactions Advisory Leader Paul Murphy says that those ignoring M&A may be missing out where valuations are depressed, providing potentially attractive returns on deals.

“The window for opportunistic acquisitions for those with access to capital is narrowing,” says Murphy.

“Investors are continuing to chase yield and minimise risk which has skewed investor preferences towards high yield debt and away from equities. However as high risk coupons decline, the attractiveness of equities relative to their risk improves suggesting a move back to equities may be getting closer.”

“There is more confidence in the global economic outlook, the syndicated bank loan market has picked up, and we have already seen a move by financial investors into mining and metals assets, usually first movers.”

“With the larger mining companies still going through portfolio reviews, it’s likely there will be opportunities in Australia for inbound investors and mid tier miners.”

Murphy says while the funding situation for many exploration and development companies is dire, an opening in the IPO market in Australia by the end of the year was not out of the question.

Q1 2013 summary: global mining and metals transactions and capital raising

  • 168 deals worth US$16.3b, down 35% and 45% compared to Q1 2012
  • Gold was the most targeted commodity (42% share of global deal value)
  • The value of overall capital raisings for the quarter increased to US$91.8b from 633 issues, compared to US$67.3b from 725 issues in Q1 2012, driven by a number of large loans.
  • 73 loans raised US$56.0b
  • 6 IPOs raised US$451m
  • 484 follow-on issues raised US$8.9b
  • 44 bond issues raised US$21.6b
  • 26 convertible bond issues raised US$4.8b

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Contact details:

Megan Ball
EY Australia
Tel: + 61 2 8295 6427