Drought of deals reflects low commodity prices, low quality of assets on the block
Miners across the world want to sell off their mines, but they have a problem: Almost no one wants to buy them.
Some veteran bankers in the mining industry say they are seeing the longest drought of deals in their careers. The rut is caused by a commodity price rout with little sign of recovery, low-quality assets on the block and a focus on shareholder returns—not acquisitions—from industry giants like BHP Billiton PLC and Rio Tinto PLC.
Deal volumes in 2014 fell 23% to 544 from the previous year, the lowest amount since 2003 and the fourth straight year of declines, according to Ernst & Young. Deals during the past decade peaked in 2010, when 1,123 were completed amid a China-fueled boom in prices. In the first quarter of 2015, the value of mergers and acquisitions in the mining industry globally fell 18% to $5.9 billion, from $7.2 billion a year ago, Ernst & Young said.
The paucity of mining deals, amid a broadly roaring M&A market, comes as prices for commodities such as iron ore, aluminum and copper are trading at near six-year lows. Other metals like nickel and zinc are being weighed down by lackluster demand.
“It will take a stronger perception we’re at the bottom of the commodity cycle before we see pickup, and typically the pickup happens after we’re off the bottom,” said Dick Evans, chairman of aluminum maker Constellium NV.
Even with the subdued activity, there are still mining deals happening almost every day, though most are relatively small. Sirius Resources NL, which is building a nickel mine in Australia, on Monday agreed to a takeover offer worth 1.8 billion Australian dollars ($1.4 billion) by Independence Group NL. Barrick Gold Corp., the world’s largest gold miner by production, this week agreed to sell an Australian gold operation for $550 million and a 50% stake in a gold mine in Papua New Guinea for $298 million.
But bankers expect Barrick to struggle unloading its Kabanga nickel project in Tanzania, which it operates with Glencore PLC. They say the field of potential buyers for nickel assets is smaller than most other metals and the mine is in a remote location with little infrastructure. A spokesman for Barrick declined to comment.
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