Miners’ M&A sinks in sea of dud deals – by James Thomson (Australian Financial Review – June 23, 2015)


Think long term. Show some vision. Be bold. Don’t mortgage your company’s future prospects by simply handing back capital to shareholders. Do something!

If like me you’ve had these thoughts about the current state of corporate psyches, then this might make you think again – big miners are apparently terrible at mergers and acquisitions.

According to research from Citi, the world’s biggest miners have now written off about 90 per cent of the value of the assets they have acquired via M&A since 2007.

Ninety per cent! This suggests the bulk of deals done by our big miners have been pretty much worthless for shareholders. A sea of dud deals. Billions in wasted capital.

According to Citi’s numbers, miners have written down the value of assets by $US85 billion in the past seven years, representing about 18 per cent of their assets base.

The worst offender was our very own Rio Tinto, which has “impaired” 34 per cent of its asset base, thanks in large part to its Alcan acquisition, which ensured aluminium assets were the most impaired at $US25 billion.

Iron ore, with $US10.3 billion worth of impairments, and nickel, with $US7.8 billion of impairments, were the next worse commodities for writedowns.

And Citi suggest there are likely to be big writedowns still to come in coal, where both thermal and metallurgical coal prices are low and likely to stay that way, meaning fair value tests will push impairments higher.

For the rest of this article, click here: http://www.afr.com/business/mining/miners-ma-sinks-in-sea-of-dud-deals-20150623-ghurp6