The FINANCIAL — M&A and capital raising activity by mining and metals companies globally during January – June 2013 remained very subdued, pointing to the third consecutive year of declining deal volumes for the sector, according to Ernst & Young, one of the global leaders in assurance, tax, transaction and advisory services.
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.
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, according to the report.
“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,” said Lee Downham, EY Global Mining & Metals Transactions Leader. “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,” he added.
Overall capital raising for the sector in 1H 2013 was $157b from 1191 issues, according to Ernst & Young.
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,” said Downham.
“Additionally Asian state-owned enterprises (SOEs) are expected to remain strong contenders for mining and metals assets of strategic interest,” he added.
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