Mining & metals deal volume and value down in 1H 2012

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Monday 23 July 2012 — Deal volume and value in the Australian mining and metals sector for 1H 2012 has dropped 20% and 31% respectively compared to the same period last year.

EY’s report on 1H 2012 transactions, financing and capital raising in the mining and metals sector shows 107 deals with a total value US$9.0 billion from January to June this year, down from 133 deals worth $13.0 billion for 1H 2011.

Globally there were 470 deals with a total value of US$55.7 billion for January-June 2012, down 19% and 38% respectively on 1H 2011.

EY’s transactions mining and metals leader for Australia, Paul Murphy, says macro economic uncertainty and market volatility have subdued deal value and volume this year.

“Rising costs and a more subdued outlook for prices has seen the industry become more conservative in the past six months, and a lot of companies have been cleaning up their balance sheets,” says Murphy.

While the volume of capital raisings by mining and metals companies in Australia in 1H 2012 remained on par with 1H 2011 at 389 (3% higher), the total value more than doubled to US$15.7 billion, 108% higher than the US$7.6 billion raised in 1H 2011.

This increase was dominated by bond issues as well as an uptick in loans.

M&A outlook

“Some companies are now actively looking for acquisition opportunities. Balance sheets are strong and while the extreme price peaks may have passed, the longer term supply/demand outlook remains strong for most mined commodities,” says Murphy.

“Lower equity valuations and lower returns on organic growth projects is swinging the pendulum back in favour of growth through acquisition.”

“During the next year or two we will see once in a decade acquisition opportunities that will position companies for future growth in the high demand commodities, particularly copper, iron ore and coal.”

Murphy says domestic rationalisation in the coal sector in Australia is likely to continue. Similarly inbound investment in Australian companies and assets will continue to be strong.

Access to capital dries up for juniors

Murphy says access to capital for exploration and development companies has tightened in the past six months and is likely to remain extremely difficult, requiring greater innovation and improvisation to secure funding.

The volume and value of mining and metals IPOs has more than halved for 1H 2012 compared to 1H 2011, with 16 IPOs raising just US$99 million, down from 34 IPOs that raised US$254 million in the same period last year.

It was a similar story globally for IPOs, with lower volumes, reduced pricing and postponements on all the main mining and metals exchanges.

Murphy says some funding is coming from Asian lenders and bigger players taking minority stakes, however “this is nowhere near to bridging the gap” at the smaller end.

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Contact details:

Megan Ball
EY Australia
Tel: + 61 2 8295 6427