China dominated M&A activity; DRC, Sierra Leone targeted for copper and iron-ore assets.
Summary: Global economic uncertainty and market volatility have subdued deal value and volume in 1H 2012 but strong balance sheets among producing companies, favorable long-term fundamentals and lower valuations are creating an attractive environment for M&A.
There were 20 megadeals (>$1b) completed in this half, up from 15 in the same period last year — reflective of opportunistic and synergistic M&A.
Activity in June suggests a pick up in momentum, with deals totaling $10b completed (up 88% month on month), and an increase in 1H 2012 volumes on 2H 2011 (although volumes are down year on year).
Higher cross border deal share is being seen, despite a consolidation drive in commodities such as coal and steel. Developed market assets were increasingly targeted by BRIC1 and emerging market players seeking to secure resources.
The Asia-Pacific region was both the preferred destination and the most active acquirer, with China dominating deal activity.
Chinese mining companies acquired domestic and cross border targets in equal measure, completing deals worth a combined $17b.
Australia closely followed, largely driven by domestic consolidation among coal companies.
North American deal activity more than halved in comparison with 1H 2011, primarily due to reduced domestic consolidation activity within the region. This may change in light of the current shake up of the US coal market.
Major European players continued to be acquisitive seeking to achieve growth through outbound M&A. The largest of these deals was KGHM Polska Miedz’ acquisition of Canada’s Quadra FNX Mining for $3.3b.
In Africa, the Democratic Republic of Congo and Sierra Leone were the most-targeted for copper and iron ore assets, despite the higher risks associated with these nations. This highlights the strategic importance of mineral supply.
1Brazil, Russia, India and China.