By Alex MacDonald
LONDON--Mergers and acquisitions in the global mining sector
dropped markedly in the first half of the year due to the uncertain
global economic environment and fall in commodity prices,
consultancy and accountancy firm PWC said in a report Thursday.
But mining companies with cash are likely to start taking
advantage of lower company valuations to pursue M&A targets as
evidenced by what is already starting to happen in the gold sector,
said John Nyholt, PWC's Canadian mining deals leader.
Global mining M&A deal volume fell more than 30% in the
first half of 2012 to 940 transactions compared with 1,371
transactions for the same period in 2011. Meanwhile, the total
value of deals during the first half of 2012 was $79 billion,
slightly higher than the $71 billion over the same period a year
earlier, PWC said.
The figure for the first six months of this year includes
commodities titan Glencore International PLC's (GLEN.LN) $53.6
billion offer for Anglo-Swiss miner Xstrata PLC (XTA.LN) based on
PWC's calculations. Excluding the deal, the total value of deals
announced in the first half of 2012 would drop to $25 billion,
one-third of last year's first half-year total, PWC said.
"Even though market anxiety has led to a pullback in equity
financing, most miners are in much better financial shape than
during the 2008-2009 global financial crisis, and wiser having gone
through it," said Mr. Nyholt in a statement.
"With market conditions expected to remain tight for months to
come, miners are looking for new ways to ensure future growth.
M&A activity in the coming months will be spurred on by both
opportunity and survival," he added.
Mr. Nyholt said that companies with cash are likely to take
advantage of depressed prices to buy smaller rivals considered too
expensive only a few months ago, while others may choose to sell an
asset, or group of assets, to raise funds to advance another
project.
Out of all the commodities, gold ranked top of the M&A
transaction list in the first half, re-establishing its first-place
position against other metals such as copper and coal, the values
of which have fallen while the price of bullion remained steady.
Gold represented the highest value of transactions at 26% in the
first six months of the year and the highest volume at 29%,
excluding the Glencore-Xstrata deal.
"Looking ahead, more gold transactions are going to take place
because of lower valuations, a rising gold price, and the growing
challenge to find new resources to fuel future growth," Mr. Nyholt
said.
China is likely to continue figuring prominently in mining
acquisitions. Excluding the Glencore-Xstrata transaction, it is the
third-largest acquiring nation behind Canada and the U.K., having
nearly doubled its share of all mining deals over the first half of
2011.
Most recently its state-owned China National Gold Group Corp.
has entered into talks with Barrick Gold Corp. (ABX) to potentially
buy its 74% stake in U.K.-listed African Barrick Gold, which has a
market capitalization of $3.2 billion.
Benjamin Schmittzehe, CEO of consultancy firm Schmittzehe &
Partners, said that China's push into purchasing gold-mining
companies is part of a larger government strategy to secure natural
resources for its burgeoning economy. In the case of gold, China is
interested in investing abroad in order to replace its central bank
reserves with gold instead of U.S. dollars and to satiate a growing
middle class's desire for jewelry and gold as a financial
investment.
Mr. Schmittzehe was speaking at a breakfast briefing sponsored
by Marex Spectron on Thursday.
Write to Alex MacDonald at alex.macdonald@dowjones.com
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