Canada becomes the destination of choice for mining transactions: Ernst & Young

Deal activity to ramp up in 2011, while companies roll the dice on frontier markets

VANCOUVER, Feb. 23 /CNW/ - Canada's mining and metals sector is set to heat up in 2011 with increased deal activity, more diverse buyer competition and a continued appetite for projects in frontier markets, according to Ernst & Young.

"Canadian M&A activity has made an incredible rebound with companies reaping the rewards of reinvigorated balance sheets and flushed with cash from high commodity prices - particularly gold and copper," said Tom Whelan, Leader of Ernst & Young's national Mining practice. "In 2010, a third of all global gold deals took place in Canada, with over half of all deals conducted by Canadian companies. The largest of these was Kinross Gold's acquisition of Red Back Mining, valued at US$7.4 billion."

Ernst & Young's annual mining and metals transactions report, Ungeared for growth, finds that Canada emerged from 2010 as the preferred destination for transaction activity in the sector globally, ahead of the US, Australia and Brazil. Canada was also the most active acquirer last year, ahead of both Australia and China, and up from fourth place in 2009.

While the number of deals was relatively flat, the transactions taking place were bigger and bolder. Deal values were up significantly to nearly CDN$29 billion from CDN$10 billion in 2009. Four of the 23 megadeals (greater than $1 billion) involved Canadian companies.

The report finds that the same factors that drove the uptick in deals in 2010 will continue to fuel the market in 2011: resource security, higher commodity prices, improved cash flow and availability of capital, ongoing industry rationalization and the desire for greater vertical integration.

"This time around, we're seeing that buyers aren't necessarily as focused on the markets typically perceived as being less risky, such as Australia and Canada," said Whelan. "As companies reap higher returns from stronger prices, they are demonstrating a willingness to take on greater political risk and are exploring 'new frontier' markets like South America, Central Asia and Africa. We expect to see this trend continue."

Competition from emerging markets to secure raw materials continues to be the key driver of mining and metals deals. Acquisitions from developing economies accounted for 43% of total deal value in 2010, and over half of the top 20 acquirers for the year were emerging countries.

As deleveraged companies compete for shrinking resources, Whelan says Canada's merger and acquisition activity will continue to escalate. He expects 2011 to be characterized by larger deals and bolt-on acquisitions.

"Eventually, as the debt market returns for the mid and junior players, acquisitive growth in this area is also likely to increase," said Whelan. "However, while the market remains tight, we anticipate a phase of consolidation among the small to mid caps, with active capital management and protectionism driving activity."

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit ey.com/ca.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

SOURCE Ernst

For further information:

Serina Yau
serina.yau@ca.ey.com
416 941 1810
  Sarah Shields   
sarah.shields@ca.ey.com 
604 891 8291   
  Julie Fournier
julie.fournier@ca.ey.com
514 874 4308

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