Metals M&A deals set to increase this year – by Nicolas Johnson (Globe and Mail – March 13, 2012)

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Corporate takeovers in the metals industry are set to increase this year as companies scramble to fight rising costs and ensure access to key materials from iron ore to rare-earth minerals.

The value of mergers and acquisitions in the sector is on course to rise 23 per cent this year to about $83-billion (U.S.), according to a report by PricewaterhouseCoopers LLP.

The number of transactions is running near a record high, averaging more than two deals per business day in 2011.

Tie-ups are also increasingly crossing continents and industries, as highlighted by an agreement last year between Brazil’s Vale SA, the world’s largest iron-ore producer, and Norway’s Norsk Hydro ASA, a major aluminum company.

Vale sold bauxite mines and other aluminum assets in Brazil to Norsk Hydro for $4.9-billon and became the Norwegian’s company’s second-biggest shareholder. That deal, the most-expensive metals transaction completed in 2011, allowed Norsk Hydro to expand its aluminum operations.

Separate groups of steel-makers in China, Japan and manufacturers in Germany are also teaming up to ensure access to iron ore and other critical raw materials.

“Security of supply, that’s the overarching theme,” Jim Forbes, the global metals team leader for PwC, said in an interview.

Manufacturers of electronics and other products that depend on rare-earth metals are getting jittery about the risk of shrinking exports from China, the world’s top producer of the minerals.

“The search to secure raw materials supply is a now a well-established M&A trend,” PwC said.

“The main focus has been on iron ore but, increasingly, the rare-earth minerals that are used in a range of high technology applications are part of the story.”

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