Global divestments a key driver in 2013 mining and metals M&A activity

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Beijing, 23 April 2013 — Chinese mining and metals companies and state-backed investors are expected to be among the counter-cyclical buyers around the world to take advantage of increased divestments by larger miners during 2013.

Speaking at the China release of EY’s report, Mergers, acquisitions and capital raising in mining and metals: 2012 trends, 2013 outlook, EY’s China Mining & Metals Leader Peter Markey says continued divestments of non-core assets is expected to be a key driver of an increase in M&A activity in the sector globally this year.

“The renewed focus by many miners on cost savings and capital optimization will see the ongoing divestment of non-core assets that began in late 2012. For counter-cyclical buyers and opportunistic investors, this year could provide rare access to sought-after assets in traditional mining jurisdictions,” says Markey.

EY’s report shows there were 941 completed mining and metals deals globally in 2012, with a total value of US$104b, down 7% and 36% respectively on 2011.

For China, there were 147 deals in 2012 with a total value of US$21.7b. China accounted for 21% of global deal volume in the sector and was the most acquisitive nation in value terms, indicative of China’s counter-cyclical investment strategy.

However Markey warns that unlike during the peak of the financial crisis in 2009 when China’s mining and metals companies and state-backed investors dominated buying globally, other Asian state owned enterprises, trading houses, resource funds and opportunistic financial investors are emerging as key buyers in 2013.

“We expect to see the continued rise of these strategic and financial buyers throughout this year, motivated by the need to secure long-term sources of mineral supply and the prospect of quick returns respectively.” he says.

EY analysis shows that the share of deal value by “non-traditional” acquirers grew year-on-year to account for 31% of total deal value in 2012, compared with 21% in 2011. State-backed and financial investors accounted for 69% and 15% of this proportion respectively.

Our analysis shows that financial investors are typically taking “toehold” investments of 10-15% while the increasingly commercially-focused state-backed strategic investors are commonly adopting a larger investment strategy.

Strategic opportunities for Chinese buyers

EY Transactions Advisory - COIN leader, Eleanor Wu, says Chinese acquisition of assets and commodities tends to be counter-cyclical, with Chinese investors working to longer-term investment horizons.

“There are an increasing number of large-scale, low-cost expansion projects being pursued in under-developed mining and metals markets where significant infrastructure development is required. As a result there are growing opportunities for Chinese mining and metals companies to add value as strategic partners supporting infrastructure development,” says Wu.

Wu says the rapid cut-back of expansion and capital spending by many mining companies globally is expected to slow long-term mineral supply and prolong a “super-cycle” scarcity premium.

“Those with access to capital and long-term view will seek to invest and may well realise once in a decade acquisition opportunities that will secure resource supplies and position companies for future growth,” she says. 

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