Resource deals slump in midst of global uncertainty

FLOATS, mergers and acquisitions have dried up in the mining and metals sector because of the faltering world economy.

By InvestSMART · 9 May 2012

By InvestSMART ·
9 May 2012

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FLOATS, mergers and acquisitions have dried up in the mining and metals sector because of the faltering world economy.

The number of transactions begun globally in the March quarter fell 34 per cent below that for the first quarter of 2011. Deal value was down 20 per cent.

Figures compiled by Ernst & Young showed almost 300 transactions took place in the March quarters of 2010 and 2011, but this slumped to 195 this year. Total value fell from $US31 billion in the first quarter of 2011 to $US25 billion this year.

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

Ernst & Young spokesman Lee Downham said 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 the year. This 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Applications for five mining floats have been withdrawn recently.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 only $3 million and working in commodities gold and iron ore that are near record high prices.

Energy floats have fared better in Australia. Oil player Pura Vida raised $4 million

in February at 20? a share. Within a month the stock was selling at 40?.

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Frequently Asked Questions about this Article…

Why have mining and metals mergers and acquisitions slowed down?

Mining and metals M&A and floats have dried up because of a faltering world economy, which has reduced deal activity and made it harder for companies and investors to commit to transactions.

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

According to Ernst & Young data cited in the article, the number of transactions begun in the March quarter fell 34% below the level for the first quarter of 2011, dropping from almost 300 in previous March quarters to 195 this year.

What happened to the total value of mining and metals deals?

Deal value was down about 20%: total value fell from US$31 billion in the first quarter of 2011 to US$25 billion in the March quarter referenced in the article.

Which country led the world 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 by the Ernst & Young data.

What does the slump mean for small miners trying to raise finance or list (float)?

Small miners struggled to find finance: only 17 mining and metals stocks floated in the first three months of the year, down from 28 in the December quarter and 31 in the March quarter of 2011, and several proposed floats were withdrawn.

Can you give examples of recent mining floats that were withdrawn or stalled?

Yes — applications for five mining floats were withdrawn recently. One example is Yulleba Resources, which pulled its float despite seeking only US$3 million and operating in gold and iron ore, commodities near record-high prices.

Is there any reason for optimism about big mining deals?

Ernst & Young spokesman Lee Downham suggested some optimism because a massive proposed merger between Glencore and Xstrata was still in the pipeline for 2012, which could boost deal activity if it proceeds.

How have energy floats performed compared with mining floats in Australia?

Energy floats have fared better in Australia. The article cites oil player Pura Vida, which raised $4 million in February and whose shares rose noticeably within a month, illustrating stronger investor interest in some energy listings.