TORONTO, March 1 /CNW/ - In 2009, global mining mergers & acquisitions (M&A) activity saw significant decreases in values and also changes in the characteristics of buyers and sellers. Sellers were acting largely through necessity to strengthen balance sheets for survival rather than seeking expansion and development capital according to PricewaterhouseCoopers' (PwC's) annual publication on deal activity in the mining sector.
Mining deals certainly felt the impact of the global economic downturn with significantly lower deal values driven by lower asset prices. An absence of 'mega deals' resulted in the total value of mining M&A activity halving from 2008 levels.
- While the number of deals increased by 16%, the average deal value
plummeted from US$124 million in 2008 to US$52 million in 2009 as
smaller deals were done to deleverage balance sheets.
- The biggest mining deal was Yanzhou Coal Mining's acquisition of
Australian coal miner Felix Resources with a value of US$2.8 billion.
- The number of small deals (below US$250 million) was significantly
above the prior three years, with a total of 1,859 deals. This trend
was driven by consolidation of smaller players and deals driven out of
necessity for survival rather than opportunistic or strategic growth
"The appetite for mining M&A was slight during the beginning of 2009, but picked up gradually as liquidity and confidence returned to capital markets," says Paul Murphy, partner and national leader of the Mining Practice for PwC in Canada. The fourth quarter recorded the greatest deal value and highest deal volume for that year."
The level of mid sized deals (between US $250 million and US $1 billion) remained consistent with 2008 with 66 deals. Deal prices fell over 2009 as deals, recognized in this bracket, saw a combination of larger transactions falling below the US$1 billion mark off the back of lower commodity prices and some of the lower end deals falling below US$250 million. The most significant change however occurred in the higher value deals space, with a dramatic drop in deal sizes greater than US$1 billion to the lowest level in four years. Not only did the number of large deals fall, but the size of these large deals fell significantly with no single deal exceeding a value of US$3 billion.
Deal activity centred in North America, Asia-Pacific and Australasia, was largely driven by activity in Canada, China and Australia. The Asia-Pacific region proved more resilient to the downturn than most, with the total value of all deals dropping 16% from 2008 levels, compared with a global reduction of around 50%. The relative strength of Asia-Pacific deal making was driven by activity in the coal sector, with six of the top ten Asian deals involving coal assets.
Murphy states, "In prior years, miners were focused on acquiring assets for growth. This market dynamic changed with the onset of the global economic downturn. For many large and junior explorers, M&A became a necessity to repay debts or fund capital projects. These obligations, combined with a lack of alternate funding options opened the door for cash-rich companies to acquire assets cheaply.
Despite these seeming bargains, the question remains: if assets are relatively cheap, compared to the peak prices of 2007, do they represent good value? A deal's success ultimately hinges on timing, and the benefits may not be realised for some time."
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