Mining deals involving Chinese buyers already rose fourfold in 2008, with some $US25.5-billion worth of deals in the mining sector taking part with Chinese money.
In its annual report on mining deals, financial services group PWC said Chinese investment in mining was spearheaded by Chinalco’s $US14.3-billion investment in Rio Tinto, which came in February.
Other major Chinese buys included Xinwen Mining Group of China’s $US1.3-billion purchase of coal exploration permits from Linc Energy in Australia, while Sinosteel picked up Western Australian iron ore play Midwest Corporation.
Coal deals in particular dominated mergers and acquisitions in North America, and the largest deal in North America was Teck Cominco’s $US12.7-billion purchase of Fording Canadian Coal Trust.
Other major coal deals included Canadian company Sherritt International’s buy out of coal miner Royal Utilities Income Fund, while the largest foreign purchase in North America was Russia’s SeverStal’ OAO, which paid $US875 million for PBS Coals.
In Australia, one of only two $1-billion-plus deals was New Hope’s sale of its New Saraji project to BHP Billiton and Mitsubishi Corporation for $US2.4 billion.
In general, PWC said 2008 was a year of extremes in mining deals around the world, for both commodity prices and deal-making.
Deals and prices soared in the first three-quarters of the year but in the third quarter, as the global slowdown bit, everything fell away.
“Mining shares went from rising star to falling asteroid status,” PWC said.
“Many fell to earth but some are burning up. Companies that were resisting unwelcome overtures at the beginning of the year were welcoming them with open arms by the year end.”
The outlook for deals for 2009 has changed radically from the climate in early 2008, but PWC said companies with balance-sheet strength will view the current climate as a buying opportunity – especially investors from China.
“The current environment presents a unique investment opportunity for acquirers from China to get in ahead of competitors and gain access to targets which might be denied to them in more normal circumstances,” PWC said.
Sovereign wealth funds and private equity players could also be on the rise.
“As with any deal-making in heavy-cyclical sectors, timing is everything and, just as mining companies have discovered who bought close to the top of the market, much will hinge on the financing and economic background.”
PWC also predicted impairment announcements, write-downs and asset sales will intensify, with considerable “sector reshaping” to follow as the strong prey on the weak.
The group said there were 1668 deals in 2008, down 4% from 2007, with total value of $US153.4 billion also down 4%.
The value of each deal was an average of $US124 million, but the group said there was an increase in bigger deals, with 30 transactions in the $US1-billion-plus category taking place, up from 25 in 2007.
The year would have been an absolute record breaker for mining deals if three big transactions had gone ahead – BHP Billiton’s bid for Rio Tinto, Vale’s on-again, off-again offer for Xstrata, and Xstrata’s play for Lonmin.
These three could have added over $US250 billion to 2008’s total value of deals.