Less deals, better value

MINING and metals companies across the world made fewer deals but received better value for their transactions during the third quarter of 2014, according to Ernst and Young.

Jack McGinn

EY’s quarterly analysis showed 119 deals were made in the sector across Q3 — a decrease of 17% on the previous quarter’s figures. However, global deal value rocketed 51% in the quarter, up to $US16.2 billion.

The increase was largely attributable to the completion of Glencore’s $7 billion divestment of the massive Las Bambas copper mine in Peru to China’s MMG in August.

Copper assets accounted for 46% of Q3 deal acquisitions by deal value.

A total of 414 deals were completed between January and September valued at $34 billion for the year to date. That was down on last year’s figures for the same period of 566 deals for $65.4 billion.

Assets in frontier markets accounted for 21% of cross-border deals, up from 3% last quarter.

Total capital raisings in Q3 was $64.4 billion, down 29% on Q2 but a 52% increase on the same period last year, with refinancing and discounted rights issues in the coal, iron ore and steel sectors accounting for a significant proportion of the financial activity.

Five IPOs raised $49 million in Q3, bringing the January-September figure to $1.3 billion from 12 IPOs.

EY global mining and metals transaction leader Lee Downham said momentum was building in the sector.

“Mining and metals transactions activity is in something of a holding pattern. Deal pipelines are still very strong but are moving slowly,” he said.

“As has been the case through most of this year, we are seeing signs of momentum slowly building but there is little urgency to complete deals quickly.

“We are starting to see more acquisitions take place again, particularly among mid-tier companies, and there has been some renewed interest in deals in frontier regions, particularly in the gold and copper space while values are low.”

EY has forecast increased merger and acquisition activity ahead, with 46% of 83 companies surveyed expecting to pursue an acquisition in the next year — the highest level in two years.

The survey also showed improved confidence in merger and acquisition deals, with improved likelihood of closing acquisitions (60%, up from 26% months ago), quality of acquisitions (60% up 34%) and increased acquisition opportunities (67% up from 42%).