Australia dominated mining company mergers and acquisitions in the Asia Pacific region during 2007. According to Mining Deals, PricewaterhouseCoopers’ annual analysis of transactions across the global mining sector, Australia accounted for 20 per cent of the world’s 50 largest deals, which totalled more than US$12.3 billion in value.
Australian mining companies continue to be highly sought after by foreign companies seeking to diversify asset portfolios and build economies of scale. Six of Australia’s top 10 deals were by foreign interests.
PricewaterhouseCoopers, Australian and Global Mining Leader, Tim Goldsmith, said, “Demand for Australian mining assets was fuelled by intense competition among global resource players attracted to Australia’s diversity of high quality assets and stable political environment. In 2008, we are likely to see deal activity intensify as China’s economy continues to grow.
“In the current credit tight market, companies with strong cash reserves have a competitive advantage for acquiring Australian mining assets. Favourable tax provisions for cash-inclusive transactions provide companies further incentives for investing in Australian resource companies.
Mr Goldsmith said, “Asia Pacific’s appetite for resource companies continues to grow, despite the global credit crunch. During 2007, regional mining transactions rose exponentially by 216.2 per cent over the previous 12 months to US$35.3 billion.”
The volume of large-scale deals also increased. In 2007, there were seven acquisitions in excess of US$1 billion. By contrast, 2006 contained only two deals that topped US$1 billion.
The largest Asia Pacific deal was Anglo-Swiss miner Xstrata’s US$2.9 billion acquisition of Australian nickel producer Jubilee Mines.
All eyes on Australia
Mr Goldsmith believes, “Australia is likely to be the epicentre of the world’s largest mining deal in 2008.”
BHP Billiton’s takeover offer for Rio Tinto has a potential deal value approaching US$150 billion, which will eclipse any single mining company acquisition in history. The previous single largest deal was Rio Tinto’s US$43 billion purchase of Alcan in 2007.
He added, “The potential transactions at the mega part of the industry will present new opportunities for the entire resources sector. The formation of super-majors will likely have residual and redundant assets that need to be divested. This will create significant post-merger buying opportunities for mid-tier and junior miners seeking to restructure or reposition themselves.”
“We are already seeing signs of a mid-market reshuffle. The planned merger between Zinifex and Oxiana will recreate a genuine mid-tier in Australia. We expect many more transactions to follow.”
Global deals climb to record heights
The total value of global transactions reached a staggering US$158.9 billion in 2007, up 18 per cent on the previous year. Deal volume also rose up 69 per cent to reach 1,732 transactions.
Mr Goldsmith said, “Global deal activity across the mining sector reached unprecedented levels and marked a new era of super-consolidation. There is evidence of further mega-deal activity with market rumours of a Vale bid for Xstrata’s assets for an estimated US$90 billion.”
China and Russia both continued on a path of consolidation and global expansion. The total value of mining deals conducted by these countries rose six-fold, from US$5.3 billion in 2005 to $US32.7 billion in 2007 – one fifth of all global transactions.
Chinese companies also increased their interests in Australian mining companies, particularly in the iron ore sector in 2007. This has continued in 2008, including Sinosteel’s recent hostile bid for steel feedstock company Midwest.
END
NOTES TO EDITORS:
1. A copy of ‘Mining Deals 2007’ can be downloaded from Tuesday 18 March at: www.pwc.com/au/mining
2. Methodology: Mining Deals 2007 is based on published transactions from the Dealogic ‘M&A Global’ database, December 2007. Analysis encompasses announced deals, including those pending financial and legal closure and those which are completed. Deal values are the consideration value announced or reported including any assumption of debt and liabilities. Figures relate to actual stake purchased and are not multiplied up to 100%. The geographical split of the deals refers to the location of the purchased asset(s). Where this is not clearly identified or relates to multiple geographical regions, the deal region is stated based on the location of the target company. The analysis relates to the extractive mining sector and therefore excludes related sectors such as the steel industry and metals trading sectors. The sector and subsectors analysed include: precious metals (e.g. gold, silver, platinum), base metals (eg iron ore, nickel, copper, aluminium), diversified (companies with a wide range of mining activities across subsectors) and other (includes coal, uranium, mineral sands, mining services).
3. Mining Deals 2007 is part of three publications by PwC encompassing M&A activity across the global resources and energy sectors. The other publications include Power Deals 2007; and Oil and Gas Deals 2007.
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