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With global commodity prices in a downward spin, it’s been a tough time to be in the mining game. The economics of big-budget projects have been thrown into question, forcing industry giants to abandon, downsize or sell prized assets.
A multitude of assets on the block and a lack of financial injections from investors have set the stage for a resurgence of acquisition activity for mining this year, dealmakers say.
“There is only one song playing on the jukebox and that is the M&A song,” said Paul Stein, a partner with Cassels Brock & Blackwell LLP in Toronto. “There is little if any financing and unfortunately there are companies that simply will not survive and we have started to see that as well.”
Mr. Stein cited base metals miner Mercator Minerals, which filed for protection from creditors last month, as an example of a casualty of the commodity price crunch.
Size is providing no immunity. Earlier this month diversified mining heavyweight Anglo American PLC said it would entertain takeover offers if the price was right. It is looking to sell assets, just like competitors BHP Billiton PLC and Rio Tinto PLC. Last April rivals Barrick Gold Corp. and Newmont Mining Corp. did the merger dance before a messy and public breakup.
John Turner, the leader of Fasken Martineau DuMoulin LLP’s global mining group, said that after a summer M&A slowdown the focus is once again on getting better through deal making. That could see the big guys playing more of a role than has been the case so far this year. “You have seen, and I think you will see, more of the big companies doing more of these ‘spinco’ transactions because, by and large, they haven’t been able to reach their price requirements on some of the assets they have been trying to sell,” Mr. Turner said.
“I suspect there are a few more of those spinco deals to come at the bigger company level.”
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