M&A in the global mining and metals sector is likely to remain subdued for the remainder of 2014, despite a strong deal pipeline and a private capital funds war chest, says EY.
LONDON (MINEWEB) – Multinational professional services group, Ernst & Young, which nowadays likes to be known as EY, has just produced its latest quarterly Mergers and Acquisitions analysis for the mining sector. This shows that there were around 112 deals in the sector during Q2 this year totaling US$9.5b. Deal volume was down 21% on the previous quarter and down 41% on the same quarter in 2013.
Total deal value was up 33% on the previous quarter, primarily due to the US$3.6 billion acquisition of Osisko Mining Corp. by Yamana Gold and Agnico Eagle. Similarly, H1 comparisons show total deal values down 69% year-on-year to US$16.7 billion from US$53.8 billion in H1 2013, the fourth consecutive year of decline
Commenting on the latest analysis, EY’s Global Mining and Metals Transactions Leader, Lee Downham, said “Deal making in the sector continues to be cautious, partly due to the continuing commitment to capital discipline, but also due to a lack of urgency over investment given the lack of competition for assets. ome standout deals and hostile bids during Q2, combined with a strong deal pipeline and substantial capital waiting toS be deployed by mining-focused funds, suggest that momentum is building. For those brave enough to invest against the cycle there would appear to be good buy-side opportunities.”
Major diversifieds, and some major mining companies in the gold space too, have been under pressure to consider divestments as a way of reducing debt, maximizing returns on capital and optimizing their portfolios; however, perhaps stronger balance sheets as a result of other capital and cost controls have perhaps taken the urgency out of these deals.
On this, Downham comments:“We do however think divestments of non-core assets from the majors will pick up pace in the next six months. While these assets may not be strategic to the divesting companies, they are typically high-quality assets and will likely attract strong competition, particularly from private capital buyers.”
However acquisitions by financial investors have been significant in this area accounting for 20% of all mining and metals deal volumes globally in 1H 2014. There are also big potential players on the sidelines like Mick Davis’ X2 Resources which apparently has a war chest of some US$3.75 billion to be used to start in setting up ‘another Xstrata’, a company which he is largely credited with having built into one of the world’s largest diversified miners prior to its merger with Glencore.
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