Mergers & Acquisitions in Mining - An Update from Mining IQ

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There has been plenty of noise around mergers and acquisitions in the mining sector recently with the takeover of Xtrata by Glencore International Plc. There is a general feel in the market that due to rising costs, the focus as a whole for mining companies should now shift to takeovers.

According to a recent report compiled by Ernst & Young, globally, the dollar value of deals entered into has increased by 43 percent, with the dominance of deals over $1billion. One of the largest deals being struck in February when Glencore International Plc agreed to an all-share $36billion takeover of Xtrata.

In terms of outlook, it seems we will see a rise in M&A, with JP Morgan Asset Managment’s Neil Gregson (who counts Xstrata Plc (XTA) and Rio Tinto (RIO) Group among his top holdings)  saying that they would absolutely “support a lot more M&A”.  Jefferies’ analysts Christopher Lafemina and Seth Rosenfeld have predicted that “M&A activity in the sector should accelerate in 2013 as capital expenditure budgets begin to decline and after the Glencore Xstrata merger closes”.

With both Rio Tinto and BHP Billiton both indicating recently that, with escalating costs, they were going to be more selective in with their expansion plans both in Australia and globally, there is even further evidence to suggest takeovers will be on the rise. Lafemina and Rosenfeld went onto say that they “expect shares of inexpensive miners that have significant low-cost growth potential and miners that are possible M&A targets to outperform.”

It seems the market conditions are also favourable with CEO of Ironbark, Mr. Jonathan Charles Downes commenting that he believes “it is now a better environment to find [acquisition] opportunities for us than even a few weeks ago,” and Oz Minerals CEO Terry Burgess was reported as commenting that “for OZ Minerals, the current environment may open up new opportunities in regard to acquisitions and joint ventures”.

According to experts, mergers and acquisitions are often most beneficial for junior mines who, when acquired by larger entities can be assisted both financially enabling them to carry out their projects to completion but also with mining expertise that may otherwise be unavailable to them. It seems that the majority opinion in the market is that the best way forward for the mining sector currently hinges on strategic acquisition of smaller, well managed mines with good liquidity.

Want to find out more?

Mining IQ is looking forward to be able to showcase a more in-depth analysis of Merger & Acquisitions in the mining sector at Mergers & Acquisitions in Mining October 30 - 31, 2012. To register visit www.miningmergers.com.au.