The 2012 review
It was far from the most active year for mining mergers and acquisitions (M&A), but 2012 had its share of exciting transactions and trends.
The deal-of-the-year was the announced $54 billion blockbuster merger between Switzerland-based Glencore International plc and United Kingdom-based Xstrata plc to form one of the world’s largest diversified miners.
Gold and copper continued to thrive
While “Glenstrata” dominated news headlines, 2012 was not a one-hit wonder for M&A activity. Copper was the most sought-after metal when measured by deal value in 2012. However, copper couldn’t outpace gold in terms M&A deal volume. While 2012 didn’t yield any blockbuster gold deals, the mining community did witness plenty of interest in the gold space.
China will continue to locate resources to meet its rapidly expanding economy, which is driven by its growing middle-class spending more money on consumer goods, as well as continued infrastructure spending. Also, China has increased its foreign investment targets, specifically in the gold and copper space - boding well for future commodity demand. China also recently surpassed the U.S. as the world’s biggest trading nation in 2012, which could bode well for future commodity demand. Despite this, markets and observers appear cautious as they wait to see how China’s economy will transition in the near term.
We don’t expect to see mega-mergers in 2013. With a rash of write-downs in 2012 related to significant acquisitions completed in prior years, shareholders are wary, not willing to stomach the risks associated with mega-mergers.
Tim Goldsmith “2013 will be all about asset rationalization and deal activity will be driven mainly by senior miners looking to divest non-core assets and looking to de-risk projects through joint ventures.”
Companies with financial constraints have been forced to get creative when it comes to raising money to fund acquisitions or advance projects. We anticipate the need for creativity to continue well into 2013. Equity investors are still content to sit on the sidelines until a marked improvements in the markets appears. Expect miners to continue to consider the bond market, joint-ventures and streaming agreements to finance their projects.