Mining M&A: Eat or Be Eaten...
posted on
Mar 19, 2008 12:45AM
Crystallex International Corporation is a Canadian-based gold company with a successful record of developing and operating gold mines in Venezuela and elsewhere in South America
By Jackie Steinitz
18 Mar 2008 at 03:42 PM GMT-04:00
LONDON (ResourceInvestor.com) -- The report "Mining Deals 2007," published by Price Waterhouse Coopers today, anticipates that even though 2007 was already a record year for deals, the landscape of the mining industry is poised for further dramatic changes with:
M&A activity is being driven by optimism about long-term growth and profitability. Sustained demand in Asia is expected to outstrip any fluctuations in Western demand.
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With skills shortages, exploration costs currently at all-time highs and permitting taking longer than ever companies are seeking to fill their pipeline with development projects, to achieve scale and to diversify their portfolios in commodities and geography through M&A. They are able to do so because of their huge buying power as a result of high commodity prices and buoyant market capitalisations. (Rio has been reported as saying last year that it was generating $1 billion cash each month.)
2007 a Record Year for Deals
Last year was a record year for deals according to the report with a total of 1,732 deals concluded in the sector globally worth $159 billion. There were $25+ billion deals, and a new deal record was set when Rio Tinto [LSE:RIO; ASX:RIO; NYSE:RTP] acquired Alcan for $43 billion.
There was no evidence of any slowdown in activity as a result of the credit crunch; in fact in the fourth quarter of 2007, 510 deals were announced, more than double the number in 2006 Q4.
Source: PwC reports: Mining Deals 2007, Oil &Gas Deals 2007, Power Deals 2007
Analysis of trends by region shows:
Source: PwC Mining Deals 2007 (all figures rounded)
2008 M&A Set to Continue
PwC anticipate that 2008 will see a further records being set in the value of deals as super-consolidation takes place in the market. The tone has already been set by BHP's [LSE:BLT; ASX:BHP; NYSE:BHP] takeover offer of $150+ billion for Rio, rumours of a potential $90 billion bid by Vale [NYSE:RIO] for Xstrata [LSE:XTA], and by Chinalco and Alcoa's [NYSE:AA] acquisition of a $14 billion (12%) stake in Rio.
The report concludes:
PwC have not explicitly measured the effect of M&A activity on share prices. But reading between the lines the combination of long-term optimism, intense competition for resources and the impact of high commodity prices on the cash balances of producing companies have to augur well for the share price of any company with resources in or close to production, particularly those in politically stable areas.