Mining and metals deals slump amid global uncertainty

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 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Applications for five mining floats have been withdrawn recently.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?

The article says a faltering global economy has hit corporate deal-making, causing floats, mergers and acquisitions across the mining and metals sector to dry up. Economic uncertainty made buyers and sellers more cautious, reducing the number and value of transactions.

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

According to Ernst & Young statistics cited in the article, the number of transactions launched in the March quarter fell about 34% versus the first quarter of 2011, and deal value was down about 20%. The total number of transactions dropped to 195 from nearly 300 in prior March quarters, and total value fell from US$31 billion to US$25 billion.

Which country led in mining and metals transaction value?

The article reports that Canada led the world in terms of value for mining and metals transactions during the period covered.

Are there any major mining mergers that could change the outlook?

Ernst & Young spokesman Lee Downham pointed to a potential boost in sentiment from the massive proposed merger between Glencore and Xstrata, which was still in the pipeline for 2012 and seen as a possible source of optimism for the sector.

How are small miners faring when trying to raise finance or float on markets?

Small miners are struggling: the article notes 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. Applications for five mining floats were withdrawn, illustrating difficulty in finding finance.

Can you give examples of companies that pulled or completed floats?

Yes. Yulleba Resources withdrew its proposed float despite seeking just US$3 million and operating in commodities (gold and iron ore) that were near record-high prices. By contrast, energy float Pura Vida raised US$4 million in February and reportedly doubled its offer price within its first month.

What do fewer deals and lower deal value mean for everyday investors in mining stocks?

Fewer transactions and lower deal values generally signal caution in the sector: it can mean less merger and acquisition activity, tougher conditions for small miners seeking capital, and more selective investor appetite. The article suggests investors should be aware that market conditions can make raising funds and completing deals harder for smaller companies.

Is there any reason for optimism in mining and metals deal activity?

Yes. While the article highlights a slump in deal numbers and value, Ernst & Young’s spokesman said there was cause for some optimism—mainly because large proposals like the possible Glencore–Xstrata merger could spur renewed activity if they proceed.