PwC predicts more 2011 rare earths, uranium M&A deals
In its latest report, You Can’t Always Get What You Want-Global mining deals 2010, PwC predicts more takeover activity of junior rare earths projects, uranium projects and complementary extractive industries such as shale. PwC also forecasts an increase in Indian-led deals seeking to secure iron ore and coal supplies, usually through private placements with offtake or royalty agreements.The report, which was made public Thursday, also revealed that China’s role in global mining M&A has been over-stated, noting “few Chinese buyers have successfully secured controlling stakes in world leading mining companies.”
Last year, PwC tracked 2,693 global mining deals worth US$113 billion, bringing the decade total to more than 11,000 transactions and a value close to US$785 billion. “No other sector has seen comparable volumes or growth rates,” PwC observed.
2011 M&A OUTLOOK
PwC suggests there will be a heightened pace of deal activity in five key resources: gold, coal, fertilizers, copper and iron ore. Fertilizer replaced silver in PwC’s key resource categories.
“Consider that, of the record $27 billion deals already announced in the first month and a half of 2011, 81% involved one of these five commodities,” noted PwC’s global mining leadership team.
In addition to the top five, PwC also anticipates acquirers to seek out junior rare earth projects in the wake of concerns about Chinese market concentration and export restrictions, as well as uranium projects as Asia and other regions “set out ambitious plans for nuclear build outs.”
“We also expect to see deal size expand through 2011, likely breaching the $10 billion price point. Our expectation is based, rather simply, on the rising market capitalization of miners.”
Meanwhile, PwC predicts “Chinese entities will take a more aggressive approach to outbound M&A in 2011.” Although China is an extremely active investor in global mining projects, the report observed “it has yet to produce a diversified mining market leader to rival the likes of a BHP Billiton or a Rio Tinto.”
“The reality is that China has been a very active investor in global mining projects in recent years, but its current market share pales in comparison to Canada and other developed countries,” said John Nyholt, national leader of transaction services, PwC.
“In the West, Chinese entities have been largely opportunistic partners, seeking to secure supply by being long-term credits,” said Nyholt. Few Chinese buyers have successfully secured controlling stakes in western-owned mining companies.”
“In fact, 61% of projects acquired by Chinese entities have been within China, with another 16% in adjoining Asian geographies or other emerging markets. However, we expect this to change in 2011,” he added.
Indian buyers represented only 1% of the buy-side volumes in the mining sector last year. However, PwC expects this to begin to change this year.
Because securing supplies of iron ore, copper, aluminum and coal will be India’s chief concern, PwC anticipates that Indian-led deals will resemble typical China-led deals from 2000 to 2007, “often structured as private placements (debt or equity) with offtake or royalty agreements.”
“We also expect that some Indian steel and power conglomerates will take toehold positions in larger iron ore or coal miners, continuing upon the trend of vertical supply chain integration we observed through 2010,” PwC advised.
Understanding and managing political, risk will be critical to the success of mining M&A in so-called frontier markets, which PwC defines as “high risk regions with underdeveloped mining sectors.”
Among the key risks in these frontier markets are security, social/environmental stresses, corruption and lack of transparency, resource nationalism and government instability.
Meanwhile, as increased stakeholder intervention could create hurdles for closing deals, mining companies will also need to improve on their people skills including answering to the collective shareholder voice, and improving collaboration with NGOs.
Mining companies also should pay attention to the increased activity of government stakeholders in the mining caution, PwC cautioned. “Acquirers will need to consider what concessions they are prepared to provide to national interests in exchange for extractive rights.”
2010 RETROSPECTIVE
Canada has always been a top destination for mining deals, but Canada now also tops buy-side activity, both within the country and abroad, PwC noted.
In their report, PwC observed, “While national interests in Canada and Australia were raising concerns about resource ownerships, corporations in Canada and Australia were buying foreign assets.”
Canadian-owned companies completed 236 acquisitions of foreign targets worth US$8 billion while their Australian counterparts completed 109 acquisitions of foreign targets worth $9.7 billion, according to PwC.
Meanwhile a number of would-be buyers failed in their acquisition attempts last year or were prompted by shareholders and/or boards to retreat and return with better terms.
Finally, the $10 billion “mega deal” threshold was not breached in 2010, PwC observed. The largest deal was Newcrest’s $8.7 billion acquisition of Lihir Gold.
Metatags: PwC, mining M&A, Chinese mining acquisitions, Canadian mining acquisitions, Australian mining acquisitions, mining stakeholders, Indian mining acquisitions, Pricewaterhousecoopers, You Can’t Always Get What You Want-Global mining deals 2010
Last year, PwC tracked 2,693 global mining deals worth US$113 billion, bringing the decade total to more than 11,000 transactions and a value close to US$785 billion. “No other sector has seen comparable volumes or growth rates,” PwC observed.
2011 M&A OUTLOOK
PwC suggests there will be a heightened pace of deal activity in five key resources: gold, coal, fertilizers, copper and iron ore. Fertilizer replaced silver in PwC’s key resource categories.
“Consider that, of the record $27 billion deals already announced in the first month and a half of 2011, 81% involved one of these five commodities,” noted PwC’s global mining leadership team.
In addition to the top five, PwC also anticipates acquirers to seek out junior rare earth projects in the wake of concerns about Chinese market concentration and export restrictions, as well as uranium projects as Asia and other regions “set out ambitious plans for nuclear build outs.”
“We also expect to see deal size expand through 2011, likely breaching the $10 billion price point. Our expectation is based, rather simply, on the rising market capitalization of miners.”
Meanwhile, PwC predicts “Chinese entities will take a more aggressive approach to outbound M&A in 2011.” Although China is an extremely active investor in global mining projects, the report observed “it has yet to produce a diversified mining market leader to rival the likes of a BHP Billiton or a Rio Tinto.”
“The reality is that China has been a very active investor in global mining projects in recent years, but its current market share pales in comparison to Canada and other developed countries,” said John Nyholt, national leader of transaction services, PwC.
“In the West, Chinese entities have been largely opportunistic partners, seeking to secure supply by being long-term credits,” said Nyholt. Few Chinese buyers have successfully secured controlling stakes in western-owned mining companies.”
“In fact, 61% of projects acquired by Chinese entities have been within China, with another 16% in adjoining Asian geographies or other emerging markets. However, we expect this to change in 2011,” he added.
Indian buyers represented only 1% of the buy-side volumes in the mining sector last year. However, PwC expects this to begin to change this year.
Because securing supplies of iron ore, copper, aluminum and coal will be India’s chief concern, PwC anticipates that Indian-led deals will resemble typical China-led deals from 2000 to 2007, “often structured as private placements (debt or equity) with offtake or royalty agreements.”
“We also expect that some Indian steel and power conglomerates will take toehold positions in larger iron ore or coal miners, continuing upon the trend of vertical supply chain integration we observed through 2010,” PwC advised.
Understanding and managing political, risk will be critical to the success of mining M&A in so-called frontier markets, which PwC defines as “high risk regions with underdeveloped mining sectors.”
Among the key risks in these frontier markets are security, social/environmental stresses, corruption and lack of transparency, resource nationalism and government instability.
Meanwhile, as increased stakeholder intervention could create hurdles for closing deals, mining companies will also need to improve on their people skills including answering to the collective shareholder voice, and improving collaboration with NGOs.
Mining companies also should pay attention to the increased activity of government stakeholders in the mining caution, PwC cautioned. “Acquirers will need to consider what concessions they are prepared to provide to national interests in exchange for extractive rights.”
2010 RETROSPECTIVE
Canada has always been a top destination for mining deals, but Canada now also tops buy-side activity, both within the country and abroad, PwC noted.
In their report, PwC observed, “While national interests in Canada and Australia were raising concerns about resource ownerships, corporations in Canada and Australia were buying foreign assets.”
Canadian-owned companies completed 236 acquisitions of foreign targets worth US$8 billion while their Australian counterparts completed 109 acquisitions of foreign targets worth $9.7 billion, according to PwC.
Meanwhile a number of would-be buyers failed in their acquisition attempts last year or were prompted by shareholders and/or boards to retreat and return with better terms.
Finally, the $10 billion “mega deal” threshold was not breached in 2010, PwC observed. The largest deal was Newcrest’s $8.7 billion acquisition of Lihir Gold.
Metatags: PwC, mining M&A, Chinese mining acquisitions, Canadian mining acquisitions, Australian mining acquisitions, mining stakeholders, Indian mining acquisitions, Pricewaterhousecoopers, You Can’t Always Get What You Want-Global mining deals 2010
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