TORONTO (miningweekly.com) ? Canada led the world in mining acquisitions for the first half of the year, both for acquirers and targets, and low debt and big cash balances mean deal flow is likely to continue for the rest of the year, Ernst & Young said on Wednesday.
Canadian mining and metals practice leader Tom Whelan singled out copper as the metal to watch for mergers and acquisitions over the next few months.
?I suspect copper will be the story to really keep an eye on,? he said in an interview.
Mining deals flowed thick and fast during the first half of the year, as companies? balance sheets swelled with cash, and debt dwindled to record lows.
Momentum is growing, with June transactions clocking in at $33.8-billion, almost one-third of all deals for the six months.
Ernst & Young said that coal saw the highest deal value for the first half of the year, accounting for about 30%, with America?s Alpha Natural Resources? $7.2-billion buyout of Massey Energy taking up a large chunk of this.
The fuel accounted for four of the top-ten biggest mining deals globally for the first six months of the year.
This week, Australian miner Macarthur Coal agreed to a sweetened A$4.8-billion joint bid from America?s biggest coal producer, Peabody Energy, and steel giant ArcelorMittal.
The gold sector was also abuzz with merger and acquisition activity in the first half, but deals were of the relatively low average value of $62-million, Ernst & Young said in a report released earlier in the day.
Much has been said about an expected wave of deals in the gold mining sector as the precious metal trades near record highs, but this has failed to materialise as much as some might have expected.
Whelan said the high levels of volatility in the price, coupled with uncertainty over its drivers, caused hesitation on the part of bullion miners.
Canada was the leading buyer for the six months, with 196 deals, as well as the leading target destination, with 129 mining companies being bought out in the country during the first six months of the year.
Globally, the amount of mining buyouts dropped, but the value rose for the period.
?Despite the drop from 573 deals in the first half of 2010 to 511 deals in the first part of this year, the total deal value of mining transactions from January to June more than doubled to $96.3-billion from $47.9-billion,? Whelan said.
The consultancy said that mining companies? debt was at all-time lows while cash flow and profitability were at record highs, driving deal making in the sector.
However, Ernst & Young pointed out that a number of ongoing issues are making management wary of mergers and acquisitions, including economic growth fears and uncertainty around the spread of resource nationalism.
PLAYING IT SAFE
In fact, Whelan told Mining Weekly Online that the biggest issue facing mining bosses currently was resource nationalism, which was having an impact on where deals are made geographically.
Last year, when commodity prices were consistently climbing and economic fears eased, resource firms were targeting ?frontier? regions such as Africa for buyouts.
With the resurgence of economic growth fears this year, companies are looking more to politically stable jurisdictions, such as Canada and Australia.
?Once people start feeling a little more comfortable, perhaps they will go ahead and start to pull the trigger on some of these transactions [in more risky areas],? he said in a telephone interview.
