Commodity price rise needed to trigger mining & metals deal flow

29 July 2013

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M&A and capital raising activity by mining and metals companies globally during January – June 2013 (1H) remained very subdued, pointing to the third consecutive year of declining deal volumes for the sector.

During the first half of 2013 there were 350 deals worth US$78.6b, with deal volume down 30% compared to the same period in 2012, according to EY’s Mergers, acquisitions and capital raising in mining and metals 1H 2013 report, released today.

While deal value was up 41%, this was primarily due to the US$37.8b Glencore International/Xstrata merger, and the US$5.1b acquisition of Inmet Mining Corporation by First Quantum Minerals.

For 1H 2013, 10 mega deals accounted for 80% of overall deal value. In contrast, in 1H 2012, 12 mega deals accounted for just 30% of overall deal value for the period.

EY Global Mining & Metals Transactions Leader Lee Downham says: “Low valuations, divestitures and cash-strapped juniors have set the stage for a buyers’ market. However, mining and metals companies remain cautious about investing capital.”

“A sign of sustained improvement in commodity prices may be needed to trigger an increase in competitive buying activity of the many divested assets coming to market.”

“We are hopeful that this is the bottom of the cycle for capital raising. There is a sense that companies are beginning to think about going back to equity markets and we are beginning to see companies preparing for IPO when the market returns.”

Overall capital raising for the sector in 1H 2013 was $157b from 1191 issues.

M&A outlook

Downham says non-traditional investors – primarily state-backed investors and financial investors including private capital and investment funds – are increasingly targeting the resources sector as valuations have plummeted, in an attempt to capture upside once confidence returns to the sector.

“Those funds that can afford to hold an asset until the cycle returns can see real value in the market right now. But if your investment horizon is short, as many public shareholders’ are, then the decision to invest the capital is not straight forward,” says Downham.

“Additionally Asian state-owned enterprises (SOEs) are expected to remain strong contenders for mining and metals assets of strategic interest.”

1H 2013 global mining and metals M&A and capital raising summary:

  • 350 deals worth US$78.6b, with volume down 30% compared to 1H 2012 but value up 41% due primarily to the US$37.8b Glencore International/Xstrata merger.
  • 10 mega deals (more than US$1b) accounted for 80% of deal value for 1H 2013, compared to 12 mega deals accounting for 30% of deal value in 1H 2012.
  • Gold was the most targeted commodity by value increasing 18% year-on-year to US$8.9b, driven by domestic deal activity in Russia. However deal volume declined year-on-year by 23%.
  • 12 IPOs raised US$459m - a year-on-year fall of 69% by volume and 35% by proceeds raised.
  • 924 secondary issues raised US$11b, a 12% drop in volume of issues year-on-year.
  • Loan proceeds of US$89b were closed from 80 loan packages, a 46% increase in proceeds due to some sizeable refinancing.
  • Bond proceeds decreased by 12% to US$50b, but volume increased by 34% to 119 issues.
  • Convertible bond issues saw the highest value growth (210%) to reach proceeds of US$5.9b, but volume fell 5% to 56 issues.