Global Mining, Metals M&A Deal Subdued in 3Q -Study

By Alex MacDonald

LONDON--Mergers and acquisition activity in the global mining sector was subdued in the third quarter, Ernst & Young said Thursday, as companies continue to streamline operations following a protracted fall in the price of commodities.

A quarterly study produced by the consultancy and accountancy firm showed deal value unchanged at $7.9 billion, while the number of deals rose to 121 in the three months ended Sep 30. Capital raised by mining and metals companies fell 17% to $49.9 billion in the third quarter compared with $60 billion in the second quarter.

"The priority for miners continues to be portfolio realignment rather than acquisitions for future growth. These divestment strategies are driving activity rather than a rush to consolidate as we saw at the peak of the super cycle," said Lee Downham, global lead partner, mining & metals transaction advisory services at Ernst & Young.

China was the highest value dealmaker in the third quarter both as an acquirer and target due to frenzied consolidation activity within the country. Chinese companies were the targets for $2.4 billion worth of transactions, and it was the acquirer in $3.8 billion worth of transactions, representing 29% and 48% of the global deal value respectively.

Within those Chinese deals, 89% took place domestically. An exception was China Molybdenum Co. Ltd's $1.5 billion acquisition of Anglo American PLC's (AAL.LN) niobium and phosphate assets in Brazil in September.

Mr. Downham said a number of high-value mergers on the horizon may drive some momentum across the global mining and metals sector in the near future, including a $27 billion proposed merger between Canada's Potash Corporation of Saskatchewan Inc. (POT) and Agrium Inc (AGU) and the restructuring deal between Baosteel Group Corp and Wuhan Iron & Steel Co. Ltd.(600005.SH). Portfolio realignment programs are also likely to be a key driver of M&A activity, including disposal programs announced by Anglo American and Freeport-McMoRan Inc. (FCX), Mr. Downham noted.

"As the sector becomes increasingly adept at managing volatility, we will see corporates begin to consider strategies that are more focused on future growth," said Mr. Downham. "This may be in the form of all-share mergers to create synergies and scale or transactions focused on creating regional diversification among the single-asset producers," he added.

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(END) Dow Jones Newswires

October 27, 2016 09:53 ET (13:53 GMT)

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