Global M&A, floats in resource sector tumble 34%

THE faltering global economy has taken its toll on corporate deal makers, with floats, mergers and acquisitions drying up across the mining and metals sector.

By InvestSMART · 9 May 2012

By InvestSMART ·
9 May 2012

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THE faltering global economy has taken its toll on corporate deal makers, with floats, mergers and acquisitions drying up across the mining and metals sector.

The number of transactions launched globally in the March quarter slumped 34 per cent below the first quarter in 2011, while deal value was down 20 per cent on the same time last year.

Figures compiled by Ernst & Young show almost 300 transactions took place in the March quarters of both 2010 and 2011, but that number slumped to 195 this year.

Total value fell from $US31 billion in the first quarter last year to $US25 billion this year, despite the latter sum being bolstered by 10 deals each worth more than $1 billion.

Canada led the world in value for mining and metals transactions.

An Ernst & Young spokesman, Lee Downham, said despite the numbers there was cause for some optimism, particularly with the massive proposal to merge Glencore and Xstrata still in the pipeline for this year.

Small miners continue to struggle to find finance, with just 17 mining and metals stocks floating in the first three months of this year.

That number was well below the 28 in the December quarter and the 31 in the March quarter of 2011.

Australian mining floats were not immune, with five companies recently withdrawing their application to list on the sharemarket. Yulleba Resources had to withdraw despite seeking just $3 million and working in gold and iron ore, which are near record high prices.

Some energy floats have fared better in Australia, with oil play Pura Vida raising $4 million in February before doubling its offer price to more than 40? inside its first month.

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Frequently Asked Questions about this Article…

Why have mining and metals floats and M&A activity slowed globally?

A faltering global economy has reduced corporate deal-making in the mining and metals sector. According to Ernst & Young data cited in the article, market uncertainty has led to fewer floats, mergers and acquisitions being launched, particularly affecting smaller miners seeking finance.

How much did mining and metals transactions drop in the March quarter?

The number of transactions in the March quarter slumped 34% compared with the same period in 2011, falling to 195 transactions from almost 300. Deal value was down about 20% year‑on‑year, with total value falling from US$31 billion to US$25 billion.

Did any large deals help support total deal value despite the slump?

Yes. The article notes the March quarter total was bolstered by 10 deals each worth more than US$1 billion, which helped keep total deal value higher than it otherwise would have been.

What does the Ernst & Young commentary say about near‑term prospects for the sector?

Ernst & Young spokesman Lee Downham said there is some cause for optimism because major proposals such as the planned Glencore and Xstrata merger remain in the pipeline, which could drive activity later in the year despite current weakness.

Are small mining companies still able to raise money through floats?

Small miners are struggling to find finance. Only 17 mining and metals stocks floated in the first three months of the year, down from 28 in the prior quarter and 31 in the March quarter of 2011, and several potential Australian listings were withdrawn.

What happened to Australian mining companies trying to list?

Australian mining floats were affected: five companies recently withdrew their applications to list. The article highlights Yulleba Resources, which withdrew despite seeking just US$3 million and operating in gold and iron ore markets that were near record prices.

Have any energy floats done better than mining floats in Australia?

Yes. The article notes some energy floats have fared better. For example, oil play Pura Vida raised US$4 million in February and doubled its offer price within its first month, showing stronger investor interest in some energy listings.

What should everyday investors watch in the mining and metals market right now?

Everyday investors should watch deal counts and deal value as indicators of market health, keep an eye on major merger proposals like Glencore‑Xstrata that could change market dynamics, be cautious with small‑cap miner floats since financing is tight, and note that some energy floats may attract more investor interest than small mining IPOs.