Deal volume in Australia dropped by 17% to 167 transactions for the first nine months of the year, while deal volume globally fell by 16% to 684.
The value of deals in Australia dropped by 50% to $US14 billion ($A13.5 billion), while globally, deal value dropped 43% to $76.8 billion.
Globally, coal was the most sought-after commodity, comprising 14.8% or $20 billion of total deal value, followed by copper ($12.5 billion).
Gold transactions accounted for the highest volume at 227 worldwide, while the focus shifted from domestic growth to cross-border deals.
The value of inbound investments in the Australian mining and metals sector increased by 48% to $5.5 billion, despite the number of inbound deals falling from 59 to 43 year-on-year.
The largest foreign investment in an Australian project so far this year was the $3.3 billion investment made by POSCO, STX Corporation and Marubeni Corporation in Hancock Prospecting’s Roy Hill iron ore project in Western Australia’s Pilbara region.
The Asia-Pacific region was the top region for investors, with China the most active acquirer, and Australia the destination with the largest percentage of deals by volume.
Many large miners had been vocal this year on Australia’s threatened competitiveness but E&Y transactions mining and metals leader for Australia and Asia-Pacific Paul Murphy said it remained a desirable address.
“Despite mining cost inflation, high-profile project deferrals and ongoing global economic uncertainty, Australian targets have continued to attract foreign investors looking to take strategic positions and secure commodities supply,” he said.
Murphy expected the trend to continue next year, with keen interest expected from Korea, China and Japan.
“We don’t expect a significant spike in deal value or volume for the remainder of the year but there are still a number of acquisition targets in Australia in the $1 billion-plus cap segment across most commodities,” he said.
“[Mergers and acquisitions] activity globally and in Australia in the short-term is going to be opportunistic, with lower valuations and asset disposals presenting attractive buying opportunities for those with cash.”
Murphy said there would also be interest from specialist funds, private wealth and state-owned enterprises.
Meanwhile, domestic deal value increased by 13% to $4 billion, mainly thanks to Whitehaven Coal’s $3 billion acquisitions of Aston Resources and Boardwalk Resources.
Coal made up 50% of the top 10 Australian deals in the first nine months of the year.
On capital raisings, the number of Australian issues increased by 12% to 597 – 30% of the global total – and the value jumped 27% to $23.7 billion or 14% of the global total as the majors flocked to the bond market.
The $87 billion raised globally on the corporate bond market so far this year has already eclipsed last year’s total of $84 billion.
BHP Billiton raised over $13 billion on the bond market this year, followed by Fortescue Metals Group, which raised $3.4 billion.
“The high yield and investment grade corporate bond markets are an increasingly attractive alternative to the bank loan market for producers in the sector,” Murphy said.
While the bond market is the place to be in 2012, overall capital raisings are set to drop this year for the first time since 2009.
Global raisings so far this year fell by 37% to $174 billion.
Murphy expected juniors to continue to struggle to raise funds.
“As a result, there are a number of funds targeting the sector, looking for minority stakes that can be a lifeline for the juniors while giving the investors access to offtake or an option over future stake building,” he said.
“Juniors are also merging to create greater scale benefits, reduce overhead costs and preserve cash.”
In Australia, initial public offerings fell from 54 last year to 20 this year, though that still accounted for nearly a third of all IPOs globally.