Mining and metals deals slump amid global uncertainty

Faltering global economy takes 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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Faltering global economy takes its toll on corporate deal-makers, with floats, mergers and acquisitions drying up across the mining and metals sector.

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 that for the first quarter of 2011. Deal value was down 20 per cent.

According to statistics compiled by Ernst & Young, almost 300 transactions took place during the March quarters of 2010 and 2011, but that number slumped to just 195 this year.

Total value fell from $US31 billion in the first quarter of 2011 to $US25 billion this year, despite that sum being bolstered by 10 deals each worth more than $1 billion.

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

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 2012. Small miners continue to struggle to find finance, with just 17 mining and metals stocks floating in the first three months of 2012.

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

Applications for five mining floats have been withdrawn recently.

Yulleba Resources pulled its float despite seeking just $3 million and working in commodities - gold and iron ore - that are near record high prices.

Some energy floats have fared better in Australia, with oil player 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 are mining and metals deals slumping globally?

A faltering global economy has reduced corporate deal-making in the mining and metals sector, with floats, mergers and acquisitions drying up. Ernst & Young statistics cited in the article show a marked drop in transactions and deal value during the March quarter, reflecting weaker market conditions for deal activity.

How much did mining and metals transaction activity fall in the March quarter?

According to Ernst & Young, transactions launched globally in the March quarter slipped 34% below the first quarter of 2011, falling to 195 deals from almost 300 in prior March quarters. Total deal value also fell about 20%, from US$31 billion in Q1 2011 to US$25 billion this year.

Which country led in mining and metals deal value during the period reported?

The article reports that Canada led the world in terms of value for mining and metals transactions during the period referenced by the Ernst & Young data.

Could any large mergers improve sentiment in the mining sector?

Yes. Ernst & Young spokesman Lee Downham pointed to cause for optimism because the massive proposed merger between Glencore and Xstrata was still in the pipeline for 2012, and such a high-profile deal could boost sector confidence and activity.

Are small mining companies finding it harder to raise finance and float?

Yes. The article notes small miners struggled to find finance: only 17 mining and metals stocks floated in the first three months of 2012, down from 28 in the December quarter and 31 in the March quarter of 2011. The article also mentions five recent withdrawals of mining float applications.

What happened with Yulleba Resources' planned float?

Yulleba Resources withdrew its planned float despite seeking just US$3 million and operating in commodities — gold and iron ore — that were near record-high prices at the time, illustrating the difficult fundraising environment for small miners.

Are any resource floats performing better despite the slump?

Some energy floats in Australia fared better. The article highlights oil player Pura Vida, which raised US$4 million in February and doubled its offer price within its first month on the market, showing pockets of stronger performance in the energy sub-sector.

What should everyday investors watching mining and metals deals know right now?

Everyday investors should be aware that deal activity and values have declined amid weaker global economic conditions, making it harder for small miners to list and raise funds. At the same time, large potential mergers like Glencore-Xstrata and resilient energy floats such as Pura Vida could provide selective opportunities or signals of recovery — but the overall deal market remains subdued according to the Ernst & Young data cited.