Mining and metals deal value in first half of 2011 doubles from 2010
(Vancouver, 31 August 2011) Canada topped the global mining and metals sector as the leading acquirer with 196 deals and as the leading target destination with 129 deals from January to June 2011, says Ernst & Young.
Following Canada, Australia was the second top acquirer by volume with 83 deals and the second target destination with 72 deals occurring within the country.
“So far, 2011 has brought fewer but larger deals to the global mining sector,” says Tom Whelan, Leader of Ernst & Young’s national mining and metals practice. “Despite the drop from 573 deals in the first half of 2010 to 511 deals in the first part of this year, the total deal value of mining transactions from January to June more than doubled to US$96.3b from US$47.9b.”
Average mining company debt is at an all-time low while cash flow and profitability are at an all-time high. These factors, coupled with increased demand for natural resources in emerging markets, are contributing to an uptick in deal activity.
“The number of mining and metals IPOs [initial public offerings] are on the rise as the IPO pipeline remains strong in the face of economic uncertainty, stock market volatility and valuation challenges causing some delays in listings,” says Whelan. “We expect to see a significant number of mining and metals IPOs during the second half of 2011 and beyond.”
The number of mining and metals sector IPOs globally was up 30% to 73 in the first half of 2011 from 56 in the first half of 2010. Total IPO proceeds were up 107% to US$13b from US$6.3b, dominated by the US$10 billion Glencore listing. Strong cash flows and increased demand from shareholders for returns also drove more than US$17b in share buybacks.
Whelan adds that while deal activity is stronger than last year’s, transactions levels still fell short of industry expectations. Although the pace of deal making is set to increase in coming months, uncertainty still lingers around M&A.
Despite increasingly available capital in the sector and a renewed thirst for natural resources from rapidly developing economies, a number of ongoing issues are making management wary of mergers and acquisitions. They include ongoing Eurozone credit issues, stagnating growth in the US, uncertainty around the pace of China’s growth and uncertainty around the spread of resource nationalism.
But with a strong transactions pipeline, capital availability and historically low debt levels across the sector driving increased M&A values and volume, all signs point to a robust third and fourth quarter for mining and metals.
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