Worth a read for the longs.
"The value of mining sector transactions so far this year has fallen to about $5 billion, the lowest level in a decade, as dealmakers cope with recent market volatility and uncertain demand for key commodities, particularly from China, bankers and lawyers say.
Advisers in the resource sector are keeping close tabs on the availability of financing, commodity prices and the Australian dollar as the lacklustre year draws to a close. Australia’s mining sector transactions total US$4.6 billion ($5.3 billion) since January 1, the lowest such year-to-date total since 2004 when there were US$2.8 billion worth of transactions, Dealogic data shows.
The year’s tally is well below the most recent peak of US$33 billion in 2011, and puts mining in fifth place as a sector behind the busiest industries of property and real estate, and oil and gas.
The sale of Glencore Xstrata’s $US5.85 billion Las Bambas project to a consortium led by Melbourne-based, Chinese-owned miner MMG, is the largest deal this year, while Baosteel Group and Aurizon Holdings’ acquisition of Aquila Resources also sits within the top ten transactions.
But there have also been speedbumps, including
the stalling of Chinese suitor Guangdong Rising Asset Management’s (GRAM) tilt at junior miner PanAust. Bankers were also kept on alert by hype around Swiss miner and commodities trader
Glencore’s potential renewed interest in industry behemoth Rio Tinto.
“In terms of activity, while this year has seen the re-emergence of a number of larger deals in mining (including MMG’s acquisition of Las Bambas
and the planned BHP Billiton demerger), the larger deals are more reflective of particular situations rather than a broader trend back to the large-scale mining M&A seen in 2008-12,” said Russell Keating, Citigroup’s local head of metals and mining.
“At the moment there, you’re probably hearing some unnecessary hysteria in and around mining, in reality, the current environment is an expected and normal part of the mining cycle, which will produce a different set of transactions over the next 12-24 months, than we’ve seen over the last five years.
“It is going to be a place where there will be activity but it will now be a different form,” he added noting the influence of recent market volatility and the relative demand for various commodities particularly from China.
Mr Keating also outlined that a softer commodities market meant mergers and acquisitions would be primarily driven by opportunism, material synergies and merger-of-equals type activity.
“Copper has been far and away the most active and attractive commodity in M&A terms which is a function of its geological scarcity and attractive demand fundamentals,” he said.
Clayton Utz Partner Rory Moriarty said the coming year would see improved, but not bumper levels of, activity in the mining industry, as divestments continued and strategic players sought out opportunities over the medium to long term.
“There will be stronger levels of activity but obviously not back to the peaks of more recent years,” he said. “The key driver will be interest from inbound investors that have a medium- to longer-term outlook. That sort of interest is not going away.”
Mr Moriarty also highlighted strategic cornerstone investors and resources-focused private equity firms as key players that would participate in future activity.
“Target boards are recalibrating their expectations of how deals will be struck and terms,” he said, of the narrowing of expectations between targets and suitors.
UBS managing director Campbell Stewart contrasted muted deal activity at the big end of mining sector to the potential for a string of transactions at the smaller end.
“Mining M&A at the larger end remains modest, most larger companies continue to focus on operational improvements – and this approach is supported by shareholders,” he said.
“At the smaller end, the entrepreneurial spirit is alive and well and we would expect some transactions spread across a number of sub-sectors. Financing for these entities is available for the right transactions, albeit markets do open and close.”
