The year of the ‘no deal’ in mining sector says PricewaterhouseCoopers report

North America's share of assets targeted in deals falls from 49% to 21% of all deals

TORONTO, March 2, 2009 — Following two years of record M&A activity, 2008 has turned out to be a year of extremes, according to Mining Deals* 2008, the annual review by PricewaterhouseCoopers (PwC) of global mining sector M&A activity. The earlier part of the year followed the previous year's buoyant pattern before plunging in a sudden dizzying vortex in the final months.

As well as being a year of very high deal activity, 2008 was also the year of what might have been. The potentially sector transforming bid by BHP Billiton grabbed the headlines but there were many otherannounced transactions that did not complete.

Many companies that had spent the earlier part of the year doing deals or resisting unwelcome overtures finished the year looking at overstretched balance sheets, preparing for write-downs, and welcoming back potential buyers with open arms.

The largest share of resources targeted by 2008 mining deals continued to be in North America and, in particular, Canada. The region accounted for a total deal value of US$32.8bn in 2008, although this was down sharply from US$77.1bn in 2007. The previous year's total included Rio Tinto's US$43bn purchase of Alcan. As a result, North America's share of assets targeted in deals fell from 49% to 21%of all deals.

North American deal numbers also fell as did those in Europe and Australasia. Indeed, North American 2008 mining asset deal value fell below 2005's level of US$36.2bn. However, this was offset by big rises elsewhere, not the least being intense activity for South American assets.

The most significant surge in deal activity came in Brazil with total deal value in South America as a whole rising dramatically from US$8.7bn in 2007 to US$22.8bn in 2008. US$17.7bn of the region's deal value was centred on Brazil — up nearly fivefold from the US$3.6bn total Brazilian mining deal value of 2007.

A large increase was also seen in deals involving Chinese buyers with the value of deals rising fourfold from US$6.7bn in 2007 to US$25.5bn in 2008. This trend is continuing and, in fact, increasing in 2009 with deals announced in February by Chinalco (a $19.5 billion transaction with Rio Tinto), China Minmetals (a $2.5 billion bid for Oz Minerals) and Hunan Valin ($0.9 billion investment in Fortescue).

"We are witnessing a unique deal environment that will reshape much of the sector's ownership," says Paul Murphy, PwC Canada's Mining leader. "The rapidity of commodity and equity price falls, combined with the immense financing constraints stemming from the financial crisis, has left the sector polarized between the strong and the weak. Chinese investors have an unprecedented window of opportunity to get in ahead of competitors and gain access to targets that might be denied to them in normal circumstances."

Mining Deals* 2008 highlights how the industry experienced a 'violent downward tailspin' in the space of a few months, turning much of the deal-making in the sector upside down:

• Deal volumes plummeted 61% in the fourth quarter of 2008 towards levels last seen in 2005
• Many companies that had spent the earlier part of the year doing deals or resisting unwelcome overtures finished the year looking at overstretched balance sheets, preparing for write downs, and welcoming back potential buyers with open arms

Tim Goldsmith, Global Mining Leader, PricewaterhouseCoopers, says, "Looking forward the constraints and contrasts in the market will create their own impetus for deal momentum. Entities with balance sheet strength will regard the current environment as a buying opportunity although many may be content to bide their time for the right conditions to emerge. Access to equity and debt has dried up for many small to mid-cap mining companies. Those with portfolios that are at the development stage or that are not sufficiently revenue generating will have to sell assets to survive. The spate of impairment announcements and write downs will intensify and, across all tiers of the industry, we are likely to see considerable sector reshaping as stronger companies seize opportunities to acquire assets at low prices."

For more information please visit www.pwc.com/mining.

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