Mergers and acquisitions fell 30 percent in 2012

March 6, 2013

Lower commodity prices and rising operating costs have taken on toll on the mining industry and have slowed merger and acquisition activity to the lowest level since 2005.

In 2012, there were 1,803 transactions, down 30 percent from the 2,605 transactions in 2011, according to figures from consulting firm PricewaterhouseCoopers (PwC).

Investors have been pushing back against miners’ mergers and acquisitions activity after years of deals at high market valuations resulted in disappointing returns.

Ivan Glasenberg, chief executive of Glencore International, which was involved in 2012’s largest announced merger, recently said investors in the global mining industry are calling on mining companies to "get smarter" and refrain from making investments that contribute to depressed commodity prices.

"Pension companies have a hole in their pockets because the mining companies have not performed," Glasenberg said. Mining companies are "not kicking out sufficient dividends, we're not getting growth in value," he added.

He said that mining companies have made poor investment decisions by funneling their cash into greenfield projects where massive cost overruns and construction delays have led to poor shareholder returns on investment, Fox Business reported.

The dollar value of merger and acquisitions completed in 2012 was down by around 26 percent at $110 billion from 2011’s $149 billion worth of deals. But almost half 2012’s tally, or $54 billion, was due to the announced merger of Swiss commodities giant Glencore International PLC and Anglo-Swiss miner Xstrata PLC.

PwC analyst John Nyholt said he expects merger and acquisition activity to remain subdued this year. “In 2013, expect deal activity to continue at moderate levels, well behind the frenzied pace of 2011,” he said.

Nyholt sees China as one bright spot, as its economic growth demands greater infrastructure, a conclusion shared by many analysts also looking for optimistic signs in the once-booming mining sector.

The data indicating a slowdown will come as little surprise to the mining world, which was in Toronto for the annual Prospectors & Developers Association of Canada conference. The crowds are thinner and the atmosphere more downbeat than in previous years and many of the attendants have complained of tougher times, reported The Wall Street Journal. 

“Every company coming here is saying, we don’t have the money,” said Thomas Albrechtson, an official at the Royal Arctic Line A/S, an airline that’s seeking business from miners looking to explore in Greenland.


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