TORONTO, March 19, 2008 — Mergers and acquisitions (M&A) levels in the global mining market have reached unprecedented levels and a new era of super-consolidation begins. According to 'Mining Deals', a report from PricewaterhouseCoopers (PwC), the huge surge in mining company M&A is particularly noticeable among Canadian companies; however the total value of these deals is down.
The volume of mining deals around the globe rose a tremendous 69% from the 2006 level to 1,732 in 2007. Total transaction value was US$158.9bn, up by 18% on the previous year. Of the 2007 deals, Canadian companies were targets the majority of the time (32%), versus 2006 where Canadian companies were the targets 23% of the time. In 2007, Canada was followed by Australia (22%) and China (9%). Canadian companies were also the majority of acquirers 41% of the time, up from 34% last year. As acquirers in 2007, Canadian companies were again followed by Australia (22%) but then the US (8%).
In 2007, Canadians led total value of deals when they were targets with 47% of the total deal value or US$74bn. When Canadians were acquirers the deals represented 16% of total deal value or US$25.9bn. This is up from 2006 where the total value where Canadian companies were targets was US$50.6bn (38%) of the total global deals. In 2006, when Canadian companies were acquiring, they accounted for 15% of total global deal values (US$19.9bn).
"More deals but lower values are a trend around the world," says Paul Murphy, leader of the PwC Canadian mining practice. "Over 90% of all deals involved transactions of US$250 million or less and the number of such deals doubled in just two years from 2005 to 2007."
Three of the top 10 2007 deals had Canadians as acquirers and a total value of US$10.2bn (12% of the top 10). Five of the top 10 deals had Canadians as targets for a value of US$57.5bn (70% of the top 10). When Canadian companies were targets the majority were diversified (60%). When Canadian companies were acquirers the majority were also looking at diversified (57%). However, a significant move in the gold sector was the three-way deal whereby Yamana Gold acquired fellow Canadian company Northern Orion Resources for US$1bn and then both companies moved for US company Meridian Gold in a US$3.4bn acquisition. The deals place Yamana Gold among the leading intermediate gold producers.
Much of the Canadian deal-making in 2007 took the form of mutual interest consolidations and these, together with the LionOre deal, accounted for much of the big increase in diversified deals. Teck Cominco's friendly US$3.9bn purchase of fellow Canadian miner Aur added considerably to the company's copper production and, in particular, to its copper reserves and resources. The deal was an example of a diversified company, Teck Cominco, taking over a company largely focused on one sector with over 90% of Aur's revenue derived from copper.
Another friendly all-Canadian deal saw two uranium miners merging to create the world's second largest uranium producer with UrAsia Energy's agreement to a US$2.9bn reverse takeover by smaller rival SXR Uranium One. The deal enabled UrAsia to diversify away from an asset base that had been concentrated in Kazakhstan.
When looking elsewhere in the world, deals for Asia Pacific mining assets surged in 2007. Deal numbers were up by 72% from 368 in 2006 to 634 in 2007. Total deal value rose 216% from US$11.2bn to US$35.3bn. There was a significant increase in the number of big deals. In 2007, there were seven US$1bn plus deals for Asia Pacific mining assets and a further eight US$0.5bn plus deals. In contrast, in 2006, there had been just two deals above US$1bn and no others above US$0.5bn. Intense competition for Australian mining assets lay behind much of the deal growth, with foreign buyers attracted by the politically stable environment and the potential to fill their resource pipelines.
A big increase in deals for diversified assets in the Russian Federation, combined with a steep change in international expansion by Russian companies, put Russia firmly on the mining M&A world map in 2007. Total deal value for Russian Federation assets was up 16% to US$19.1bn in 2007 and Russian buyer activity rose 66% to account for US$26bn of assets, up from US$15.7bn in 2006. It was the size of the biggest deals rather than the extent of deal activity that pushed up the totals. Two deals topped the list of purchases of Russian mining assets: Rusal's US$13.3bn acquisition of a 25% stake in Norilsk Nickel and Mechel Steel's winning US$2.3bn bid in the privatisation auction for stakes in Russian coal mining companies Yakutugol and Elgaugol. In addition, Russia's Norilsk Nickel's US$5.4bn all cash purchase of Canadian nickel miner LionOre highlighted the importance of international expansion by Russian mining companies.
There were big increases in deal numbers for assets in both Africa and South America — up by 81%, from 52 in 2006 to 94 in 2007, in Africa and up by 51%, from 115 to 174 in South America. Of the two regions, Africa accounted for the largest total deal value with US$13.5bn worth of deals, up by 38% from US$9.8bn in 2006. South American total deal value rose slightly from US$8.6bn in 2006 to US$8.7bn in 2007.
For more information, please visit www.pwc.com/mining.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,200 partners and staff in offices across the country.
“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
