Interesting stats. The Chinese may be a knocking!

Cheers.

B. (yes my new avitar is of my new family addition (Ryan James!)

Merger & Acquisition Activity in the Mining Sector

Source: Financial Post - Crosbie

In the Gold Sector, 12 deals were completed in the first 3 months of 2009 for a total value of $690 million. Although the total value of transactions was drastically lower than 2008, the number of deals actually increased, reflecting how far mining company values have come off their highs. It also reflects the consolidation happening among the smaller gold companies. Notable deals in the first quarter of 2009 were New Gold Inc.’s acquisition of Western Goldfields, and Barrick Gold’s acquisition of Teck Cominco’s gold mines in Hemlo Ontario.

The Metals and Mining Sector had a total of 32 deals done in the first quarter of 2009 for a total transaction value of only $645 million, again reflecting the deflated value of mining companies compared to past years.

In terms of M&A multiples, companies paid an average of $115 per ounce of gold for producing assets and $31 per ounce of gold for exploration assets, reflecting a substantial premium paid for producing assets as cash flow becomes more and more important in these turbulent markets.

In July 2008, Kinross Gold made an all share bid for Aurelian Resources and its Fruta Del Norte project located in Ecuador. The takeover happened during a period where the Ecuadorian government had halted all mining while it reviewed and overhauled the operation of the entire sector, creating enormous uncertainty. The transaction valued Aurelian at about $1.2 billion, equal to $86 dollars per ounce of gold in the ground and closed in September 2008.

Teck Cominco also acquired Fording Canadian Coal Trust in October 2008, for a total transaction value of US $13.5 billion. However to complete this transaction, the company borrowed almost $10 billion, including $5.4 billion in a short term bridge loan. As prices have fallen, Fording’s value has dropped to a fraction of its purchase price, putting pressure on Teck to cut costs and sell off noncore assets in order to deal with its huge debt-load.

After a year-long pursuit, BHP Billiton walked away from its hostile bid of Rio Tinto citing Rio’s massive amount of debt from its $38.1 billion takeover of Alcan in 2007. BHP spent $450 million and 18 months pursuing the takeover, but will now focus more on internal development. Both companies are expected to cut their capital spending in the current downturn, but this will be more important for Rio Tinto which has a $9 billion debt repayment scheduled for October 2009.

Consolidated Thompson Iron Mines announced in March 2009 that Wuhan Iron and Steel Corp (WISCO) agreed to make a $240 million investment in the company for a 19.9% stake. As part of the deal, WISCO will be entitled to other long-term off take rights at fair market value from both initial production and future expansion. This deal continues the trend of Chinese companies securing hard assets around the world to secure supply over the long term.

In March of 2009, Cliffs Greene BV, a wholly owned subsidiary of Cliffs Natural Resources, an international mining and resources company, made a strategic 19.9% investment in KWG Resources Inc. KWG Resources has a joint venture on a high grade chromite deposit in the “Ring of Fire” in Northern Ontario. Chromite is refined into ferrochrome, which is one of the main inputs in stainless steel. Most of the world’s chromite resources and ferrochrome production is located in countries such as South Africa and Zimbabwe, making a high grade deposit in Ontario very attractive because of its political stability and the availability of cheap power for a ferrochrome furnace in Thunder Bay. KWG Resources currently has a 25% joint venture on its deposit with Spider Resources Inc. (25%) and Freewest Resources Canada Inc. (50%), with Spider and KWG having the option to attain a cumulative interest of 65% pending certain conditions.

On April 15, 2009 Noront Resources Ltd. reported assays that were directed at testing its chromite deposits on its 100% owned Ring of Fire project. This chromite basin now appears to extend for 20km with areas of very high grade chromite (40% + Cr2O3) and good thickness of 20 to 30 meters. Other junior companies in this basin include Fancamp Exploration, UC Resources, and MacDonald Mines Exploration Ltd.