Mining mergers slowed down in 2013

September 18, 2013

The number of merger and acquisition deals in global mining sector fell by 31 percent in the first half of 2013, according to a new report from PwC, Global Mining Deals Mid-Year Report: Deals in the Dumps

The report looks at trends in the global mining industry and found that although merger and acquisition (M&A) activity was slow in the first half of the year, the United States was the third most active country in terms of M&A activity. For the rest of 2013 and into 2014, M&A in the mining industry is expected to remain lethargic. However, deals will come together for companies that have enough cash to seize the opportunity and as their peers unload assets that are no longer considered a fit in the renewed cost-cutting environment, PwC said in the report.

The current volatility in the mining sector has had a noticeable impact on merger and acquisition (M&A) activity in 2013. While some companies have taken advantage of lower prices to pick up assets, the number of deals across the global mining sector fell by 31 percent in the first half of 2013 compared to the same time last year, which was already considered to be a slow time for deal activity. While majors continue to invest in their operations, projects have been deferred and capital spending has been curbed.

The real challenge in the current M&A market is finding buyers. Juniors are not seeing the same level of takeovers they have come accustom to at a certain stage in their growth, while majors are mostly looking to divest assets, not pick up more. Meantime, mid-tier consolidation interest has waned due to tight financing conditions and fewer buyers overall.

Equities across the sector have fallen by about 30 percent so far this year, which has also impacted the size of deals. Deal value fell 74 percent to US$20.6 billion between January and June 2013 versus the same period last year, which was a period highlighted by Glencore International US$54-billion purchase of Xstrata, the largest-ever takeover in the sector. Even without the blockbuster GlencoreXstrata agreement, deal values were down 21 percent for the first half of 2013 as compared with a year earlier. Gold and copper continued to be the most active for buyers and sellers in the first half of 2013. That trend is expected to continue as depressed prices create opportunities for companies that can afford to buy, and may force others to sell, PwC found.

One shift so far in 2013, as compared to previous years, is in the geography behind some of the top deals, and who is making them. Unlike in previous years, when deals were dominated by players in countries such as Australia and Canada, top M&A activity so far this year is coming from former Soviet Union states, namely Russia and Kazakhstan. Russia accounted for more than a quarter of deal value by geography in the first half of 2013, followed by Kazakhstan. The United States rounded out the top three. That’s a new lineup compared to last year when Canada, the United Kingdom, Switzerland (thanks to GlencoreXstrata) and China dominated the top spots for deal activity by geography. Deals by Russian and Kazakhstan oligarchs led M&A activity for the first half of 2013. Two Russian billionaires are behind the top deal, which was for a stake in Polyus Gold International Ltd., the country’s largest gold miner, while Kazakhstan billionaires were behind the second and third-largest transactions for the January-to-June period.
 

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