PRICEWATERHOUSECOOPERS MINING DEALS REVIEW PricewaterhouseCoopers' Global Mining Deals Team calls 2008, the "year of what might have been" as deals that were not completed grabbed the headlines more than those that actually reached fruition. Author: Dorothy Kosich Posted: Tuesday , 03 Mar 2009 RENO, NV - In their annual "Mining Deals 2008 Annual Review", PricewaterhouseCoopers suggests that, while the short-term outlook for mining deal activity from western mining companies is subdued, mining companies with available funds "may well find 2009 to be a year where they can utilize their financial strength and achieve acquisitions at long-term bargain basement prices." In the analysis by the Global Mining Deals Team, PwC called last year "the year of what might have been. ...The deals that were not deals grabbed the 2008 headlines just as much, and in many cases even more, than those that actually reached fruition." "Many companies that had spent the earlier part of the year doing deals or resisting unwelcome overtures finished the year looking at overstretched balance sheets, preparing for write-downs and welcoming back potential buyers with open arms." PwC also called 2008 "a year of extremes," as "mining shares went from rising star to falling asteroid status. Many fell to earth intact but some are burning up." Despite the dramatic fall in commodity prices, PwC noted that 2008 deal volumes at levels not far below the record highs in 2007. "Indeed, there was an increase in bigger deals with 30 US$1bn plus transactions compared to 25 in 2007." "Iron ore was particularly sought after global steel mills scrambled to secure supplies. The total value of deals for iron ore assets nearly tripled-up from US$7.5b in 2007 to $21.4b in 2008-and the number of deals rose from 40 to 107," the report said. "Similarly, demand for nuclear fuelled a 28% rise in deals for coal and uranium assets. The total value of such deals rose from US$29.9bn to US$54.2bn year-on-year." Brazil experienced the most significant surge in mining deal activity as the total deal value in South America as a whole shot up from US$8.7 billion in 2007 to $22.8 billion in 2008. Nevertheless, PwC noted, "The largest share of resources targeted by 2008 mining deals continued to be in North America and, in particular, Canada." However, the region's total deal value of $32.8 billion in 2008 was down substantially from $77.1 billion in 2007. Meanwhile, North America's share of assets targeted in deals fell from 49% to 21% of all deals last year. Canadian companies or assets accounted for 82% of North American target deal value. The largest North American deal was Teck Cominco's $12.7 billion purchase of the Fording Canadian Coal Trust. "The Teck Cominco developments highlight the contrast between the period before and after the collapse in commodity and equity prices," the report noted. Eighty-four percent of North American mining deal value was in the coal and uranium and other precious metals sectors. PwC revealed "an increase in the value of coal mining deals boosted activity in this sector." Heading the precious metals deal was Barrick's US$1.7 billion purchase from Rio Tinto of the remaining 40% of the Cortez gold project in Nevada. PwC highlighted a big increase in deals involving Chinese buyers with the value of these deals increasing fourfold from US$6.7 billion in 2007 to $25.5 billion in 2008. "As the year grew to a close and the impact of the downturn on the sector intensified, Chinese buyers played an increasingly important role with opportunities available to them which would not otherwise be available in less constrained times," the report said. As an example, PwC cited Chinalco's role in the battle as BHP Billiton circled Rio Tinto in an ultimately unsuccessful venture. Meanwhile, the deal volume for Australasian mining resources fell 11% from a total deal value of US$19.2 billion in 2007 to US$17.1 billion in 2008. Last year also saw the continued emergence of Chinese investors in Australian mining. However, the total value of deals from the Russian Federation and the Commonwealth of Independent States rose 21% from US$20.9 billion in 2007 to $25.2 billion in 2008. Nevertheless, PwC found mining acquisitions by Russian companies fell to $20 billion last year from $26 billion in 2007. "Much of the total was domestic activity with no foreign acquisitions to rival the 2007 US$5.4bn purchase of Canada's LionOre by Norilsk Nickel," PwC noted. African also experienced increases in the overall number of deals, up 39% from 94 in 2007 to 131 last year. However, African deal value dropped from $13.5 billion in 2007 to $9.6 billion in 2008. PwC said the African deal-making spotlight focused last year on unsuccessful attempts to combine Impala Platinum and Northam Platinum. PwC advised, "Continuing financial market uncertainty, economic slowdown and actual recession in many countries look set to provide the background to mining deal-making for the immediate future at least. In the foreground, depressed and, in some cases, collapsed share prices and an inability to access debt markets are causing immense distress for some mining companies. In contrast, others have relatively healthy balance sheets." In their analysis, PwC predicted activity by private equity players, who are usually not investing in mining, may increase. However, PwC also noted that access to equity and debt has dried up for many small to mid-cap mining companies. "The spate of impairment announcements and write-downs will intensify and, across all tiers of the industry, we are likely to see considerable sector reshaping as stronger companies seize opportunities to acquire assets at low prices," PwC concluded.