Mining M&A activity down in 2013

The first half of 2013 has seen a lower level of mergers and acquisitions according to an Ernest & Young report.

In its latest report, E&Y state that global M&A in mining has been subdued so far.

It explained that instead "management teams across the industry are focused on cost containment, margin improvement and asset optimisation at the expense of high risk capital expenditure, acquisitions or exploration".

The report states that internationally, investors' confidence in mining and metals, which have been particularly sensitive to short term economic changes.

This vulnerability to swift changes, while it drew investors rapidly during the boom, has now driven funds out of the sector's equities into other industries.

"Tension between sellers' and buyers' expectations remain high; a sign of sustained improvement in commodity prices may be the trigger needed to accelerate competitive buying activity of the many divested assets coming to market."

This assets are seen as a 'fire sale' by some as many companies attempt to shed underperforming assets in an attempt to quickly cut costs.

BHP recently saw an unwillingness for acquisition in the market after its attempt to divest the underperforming Gregory coal mine garnered no industry response.

Instead the miner was forced to call off the sale after failing to secure a buyer.

"This decision is a result of a strategic review of the mine, including investigation of potential divestment," BHP said in a statement.

"The review concluded that shareholder value is maximised by retaining the [closed] asset within the BMA portfolio.

"Recent operational improvements at the Crinum underground mine support the company's decision to continue to operate the site."

Alacer Gold, is also looking to sell off its Australian gold assets, with CEO David Quinlivan explaining that there was some interest in the sale process but nothing is firmed up.

Cash strapped juniors, who have been hit hardest by the downturn, are likely to now set the stage for a buyers market, E&Y states.

"However, mining and metals companies remain risk-averse in an environment of macroeconomic and geopolitical uncertainty, pointing to the third consecutive year of declining deal volumes for the sector."

The latest report also states that rather than looking overseas, many investment firms will instead focus on domestic operations.

"The reversal in cross border activity so far this year also highlights the trend of companies to minimize risk exposure by investing domestically.

"There has been an absence of interest from the majors, and only a few mid-tier buyers with adequate financial means. Non-traditional investors are increasingly targeting the resources sector as a means to diversify their portfolios, hedge against rising inflation risk and potentially generate significant capital gains.

"Asian state-owned enterprises (SOEs) will remain strong contenders for mining and metals assets of strategic interest. Minority stake sales and consolidation are expected to be continuing trends among mid-tier and junior companies as they struggle to survive difficult market conditions."

According to Ernst & Young, the mining industry has been hit harder than other industries.
"The capital raising environment in 2013 is marked by volatility and appears to be punishing the mining and metals industry more than others.

"Global mining and metals equities are continuing on a steep downward trajectory, underpinned by a lack of investor confidence both in the global demand outlook and in companies’ ability to deliver acceptable returns.
"Continued commodity price weakness, particularly in gold, has further undermined confidence."

However, despite the current gloomy outlook, E&Y did point to an upswing later this year.

"We anticipate greater consolidation at the junior and mid-tier level as critical mass becomes increasingly important for accessing project funding. We also expect the continued injection of capital from private capital, offtakers and specialist finance providers. "

Key themes of 1H 2013

  • During 1H 2013, there were 350 deals worth US$78.6b.
  • Deal volume over 1H 2013 was down (30%), but value up (41%) due to a handful of mega deals (>$1b).
  • North America was both the preferred destination ($19.8b) and the most active acquirer ($21.5b), with largely domestic consolidation in Canada and the US.
  • Gold was the most targeted commodity in 1H 2013 by value ($8,601m) and volume (124).
  • Mining IPO volumes and proceeds have fallen to unprecedented lows — 12 IPOs in 1H 2013, raising just $459m.
  • Equity proceeds from follow-on equity issues by juniors have nearly halved year-on-year, to just $2.9b. Bond proceeds raised in 1H 2013 have fallen 12% year-on-year, but remain high at $50b.
  • Syndicated loans have shown a 46% year-on-year increase, primarily due to some large-scale refinancings by the majors.


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