TORONTO, March 5, 2012— Despite a weak macro backdrop and falling commodity prices, 2011 saw more than 2,600 M&A deals worth $149 billion announced in the global mining sector. Volumes were close to historic highs and values were 33% higher than 2010 according to PwC’s Global Mining 2011 Deals Review & 2012 Outlook: On the road again report. Canada led the charge in mining sector deal making; 30% of all 2011 global mining acquisitions involved a Canadian buyer, a greater proportion than any other one country.
“Buyers were plentiful, bidding wars ensued and valuations were high, all of which are unexpected in an environment of resource price erosion,” says John Nyholt, Canadian Mining Deals Leader, PwC.
The report highlights 2011 deal metrics, and also presents the findings of a detailed geographic analysis revealing that geographic clustering remains prevalent in the mining sector. According to Mr. Nyholt, “With the exception of a small number of outliers, the developed and growth worlds are biased towards transacting within their own regions. Very little ‘cross-pollination’ occurred between the two worlds.”
Regarding Western-led deals, 72% involved acquisitions of projects in another developed world region. Sixty-one per cent of Canadian-led acquisitions involved projects in Canada. The report indicates that the trend of Western miners’ bias to “playing it safe” may be a barrier to long-term growth, given that roughly three quarters of known reserves lie in countries outside the developed markets.
Mr. Nyholt says, “Numbers don’t lie. Developed nations have to ask themselves– What is the long-term cost of not doing more business in these markets?”
In 2011, key growth market buyers represented 24% of acquisitions, nearly 50% higher than the total deal value at the 2006 market peak. “While these markets aren’t yet dominant, with each passing year, growth market miners increasingly become forces to be reckoned with,” says Mr. Nyholt.
“To effectively approach a growth market and reduce the risk of a deal cancellation, Western entities, especially boards and shareholders, will need to reconsider the manners in which the balances of risk and reward are weighed,” says Mr. Nyholt.
In 2012, the report forecasts continuing high M&A volumes and values in the global mining sector. “With demand for new projects, rising production costs and declining developed world reserves, miners will seek out targets to build scale and achieve cost efficiencies,” says Mr. Nyholt.
Forecasts for 2012 include:
For more information or to read the full Mining Deals report, visit: www.pwc.com/ca/MiningDeals.
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