Disciplined M&A approaches, smaller digestible deals and a focus on
transparency lie ahead for miners
TORONTO, March 5, 2013 /CNW/ - After a slow and cautious 2012, mining M&A activity is expected to
continue at a moderate and cautious pace in 2013 as metal prices
stabilize and companies bet on a continued rise in commodity demand
from countries such as China, according to the latest Mining Deals report by PwC to be released this week.
There were 1,803 transactions in 2012 - the lowest level since 2005.
Deal volume in 2012 also decreased more than 30% as compared to 2,605
transactions in 2011. The value of mining deals also slipped in 2012,
as compared to 2011, with the total of M&As amounting to $110 billion
in 2012 (including the $54 billion value of the Glencore/Xstrata merger
which was announced last February and has now nearly cleared all
regulatory approvals). Without the Glencore/Xstrata merger, deal value
falls to $56 billion - compared to a total deal value of $149 billion
"In 2013, expect deal activity to continue at moderate levels, well
behind the frenzied pace of 2011," says John Nyholt, Canadian Mining Deals Leader, PwC. "Miners will have their eyes on opportunities, but will consider risk
factors such as rising costs, resource nationalism and potential
political ramifications of buying and selling assets. The appetite for
controversy is decreasing as miners are wary of joining the list of
highly publicized write-offs from past deals, both friendly and
Nyholt continues, "Companies want to prove more than ever that they're
being prudent with shareholder dollars. There's an expectation that
most deals will be smaller and more digestible, triggered by companies
with successful track records from both deal and project development."
Gold and copper continue to thrive
According to the Mining Deals report, gold and copper dominated M&A activity in 2012 as miners with
cash took advantage of lower valuations to fund future growth.
Together, the two metals accounted for half of the top 20 deals last
year, even before considering their mix in the diversified metal
"Gold and copper are both popular metals for different reasons.
Investors are turning to gold as a hedge against inflation and general
economic uncertainty. While copper is considered a bet on the future
health of the global economy as the metal is used in everything from
plumbing and power to automobiles."
Other commodities of interest include uranium as producers take
advantage of prices that have been depressed since the March 2011
Fukushima nuclear facility disaster in Japan. Iron ore also appeared a
few times among the top 20 deals of 2012, particularly among
steelmakers looking to boost access to this metal.
Thoughts for 2013
Considerations for the mining industry for the year ahead include:
Staying transparent - Miners are dealing with an increase in transparency initiatives for the
global extractive sector. Examples include the Dodd-Frank Act's
Conflict Mineral Rule in the U.S., legislation mandating
project-by-project payment disclosures in the European Union that will
face a vote in 2013, and Hong Kong law passed in 2010 where listed
companies must disclose payments to foreign governments on a
Growing China - China will continue to locate resources to meet its rapidly expanding
economy, which is driven by its growing middle-class spending more
money on consumer goods, as well as continued infrastructure spending.
Also, China recently surpassed the U.S. as the world's biggest trading
nation in 2012 - boding well for future commodity demand.
Creative financing - Nyholt says, "Most miners will be looking for new ways to find and fund
future growth." This includes alternative financing arrangements,
including royalty and streaming agreements, which started to trend in
2012. So far in 2013, Vancouver-based Silver Wheaton announced a $1.9
billion acquisition of gold streams from Vale mines in Canada and
Brazil using this method.
Nyholt concludes, "It's shaping to be another interesting year for
commodity markets in 2013 as investors are waiting anxiously to see
which companies have the capability to take advantage of the next big
For more information on the Mining Deals report, please visit PwC's mining site at: www.pwc.com/ca/mining.
LinkedIn: Join the PwC Mining Community www.pwc.com/ca/mining-linkedin
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SOURCE: PwC Management Services LP
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