Miners Dig for Deals as M&A Moves to Emerging Markets
Dec. 15 (Bloomberg) -- Mining takeovers, heading for the second best year on record, are shifting to the emerging markets of Africa and Asia as BHP Billiton Ltd., Rio Tinto Group and Xstrata Plc look to seal cheaper deals in less-explored areas.
As prices for most commodities rise, global mining acquisitions have more than doubled in value this year to $132 billion, boosting advisory fees for banks such as Credit Suisse Group AG, according to data compiled by Bloomberg. Buyers paid an average 23 percent premium to the market price for those deals, more than twice as high as margins in Latin America, Africa and the Middle East.
BHP and Rio lead a list of possible buyers as the top eight miners generate an estimated $132 billion in earnings next year, according to Sanford C. Bernstein & Co. Coal, copper and gold are favored, with Africa a “hotspot,” said Mark Carlile, head of resources investment banking in Australia at Credit Suisse, this year’s top ranked adviser on emerging-market mining deals.
“Larger-cap miners are cash-rich and looking for new revenue pipelines,” said James Holt, who helps manage about A$40 billion ($40 billion) at BlackRock Investment Management (Australia) Ltd., including BHP and Rio shares. Africa could be a focus, he said.
BHP, based in Melbourne, declined 0.7 percent to A$45.35 at the 4:10 p.m. close in Sydney. Rio fell 1 percent to A$87.02 in Australia and dropped 0.2 percent to 4,430 pence in London.
Rosatom Purchase
The mining industry’s capital flows to the Middle East and Africa have more than doubled to $7.7 billion this year, Bloomberg data show. In a deal announced today, Russia’s Rosatom Corp. agreed to buy Mantra Resources Ltd. for A$1.6 billion to gain access to the Mkuju River uranium project in Tanzania.
Companies such as Nathaniel Rothschild’s Vallar Plc, Xstrata and Aluminum Corp. of China are investing from Indonesia to Mauritania to lock in supply. Freeport-McMoRan Copper & Gold Inc. and Ivanhoe Mines Ltd., with projects in the Democratic Republic of Congo and Mongolia, are potential takeover targets, according to UBS AG.
“If you aren’t looking further afield you are just constraining yourself,” Credit Suisse’s Carlile said. Some clients “have the capacity to take on more risk in far-flung places, others don’t,” he said.
Riversdale Talks
Rio Tinto, the world’s third-largest mining company, and Mozambique coal developer Riversdale Mining Ltd. have held talks on a A$3.5 billion offer, Sydney-based Riversdale said Dec. 6.
Xstrata, the fourth-biggest mining company by sales, is paying A$514 million for Sphere Resources Ltd. to gain three iron ore projects in West Africa.
“Almost by definition there are more resources that can be found in less developed countries than developed countries” because of less exploration, said billionaire Ken Fisher, who oversees more than $38 billion at Woodside, California-based Fisher Investments Inc.
Xstrata is paying 15 Australian cents a ton for Sphere’s iron ore, based on the takeover price and stated ore resources. That compares with the A$2.55 a ton BHP paid in its A$204 million purchase of Australian explorer United Minerals Corp. in October last year.
Equinox Offer
Equinox Minerals Ltd., based in Perth and with mines in Zambia, agreed to pay two times earnings before interest, tax, depreciation and amortization when it offered A$1.2 billion last month for Citadel Resource Group, developing Saudi Arabia’s biggest copper deposit. That compares with the 22 times Quadra Mining Ltd. paid this year for FNX Mining Co.’s copper and nickel mines in Canada.
Producers can pick up assets more cheaply in developing nations based on lower reserve and resource cost multiples, Greg Fournier, head of Asia Pacific metals and mining investment banking at Merrill Lynch, the number three adviser, said in an interview.
Morgan Stanley, Credit Suisse and Merrill are the top three banks in global mining deals this year, advising on 42 transactions valued at $81 billion, according to Bloomberg data.
Morgan Stanley led with 22 percent of deals, followed by Credit Suisse with 20 percent, and Merrill, a Bank of America Corp. unit, with 19 percent. Credit Suisse ranked first for deals in emerging markets in Asia Pacific, Latin America and the Caribbean.
Rio, BHP
Rio is “actively reviewing opportunities” for small-to- medium sized acquisitions, Chief Financial Officer Guy Elliot said on Nov. 29. BHP Chairman Jac Nasser said last month the board wanted the company to continue to look for acquisitions.
Mining companies are aware of the risks of doing business in Africa, said Paul Galloway, an analyst at Bernstein in London. Rio has been in a dispute with Guinea since 2008 when the government ordered the London-based company to hand over part of the Simandou iron ore deposit. First Quantum Minerals Ltd. is trying to recover mining rights in the Democratic Republic of Congo after the government withdrew its permit.
“If commodity prices are low and the values of these assets are low, there is not too much of an incentive to go off to deepest, darkest Africa,” said Gavin Wendt, a senior resources analyst at Mine Life Pty in Sydney. “You need a higher return on your investment to offset the potential risks in investing in a place like Africa.”
Mergers and acquisitions are a faster, cheaper route to production than constructing projects from scratch, Standard Chartered Plc said in an August report. The cost of building a copper mine has more than doubled in the past five years, according to the report.
“Is it cheaper to put in new stuff today or buy stuff? Where is there less risk?” said Fisher, who is “overweight” in emerging markets and mining stocks. “My view is there is less risk in buying.”
--With assistance from Jesse Riseborough in London. Editors: Tony Barrett, Amanda Jordan
To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net.
As prices for most commodities rise, global mining acquisitions have more than doubled in value this year to $132 billion, boosting advisory fees for banks such as Credit Suisse Group AG, according to data compiled by Bloomberg. Buyers paid an average 23 percent premium to the market price for those deals, more than twice as high as margins in Latin America, Africa and the Middle East.
BHP and Rio lead a list of possible buyers as the top eight miners generate an estimated $132 billion in earnings next year, according to Sanford C. Bernstein & Co. Coal, copper and gold are favored, with Africa a “hotspot,” said Mark Carlile, head of resources investment banking in Australia at Credit Suisse, this year’s top ranked adviser on emerging-market mining deals.
“Larger-cap miners are cash-rich and looking for new revenue pipelines,” said James Holt, who helps manage about A$40 billion ($40 billion) at BlackRock Investment Management (Australia) Ltd., including BHP and Rio shares. Africa could be a focus, he said.
BHP, based in Melbourne, declined 0.7 percent to A$45.35 at the 4:10 p.m. close in Sydney. Rio fell 1 percent to A$87.02 in Australia and dropped 0.2 percent to 4,430 pence in London.
Rosatom Purchase
The mining industry’s capital flows to the Middle East and Africa have more than doubled to $7.7 billion this year, Bloomberg data show. In a deal announced today, Russia’s Rosatom Corp. agreed to buy Mantra Resources Ltd. for A$1.6 billion to gain access to the Mkuju River uranium project in Tanzania.
Companies such as Nathaniel Rothschild’s Vallar Plc, Xstrata and Aluminum Corp. of China are investing from Indonesia to Mauritania to lock in supply. Freeport-McMoRan Copper & Gold Inc. and Ivanhoe Mines Ltd., with projects in the Democratic Republic of Congo and Mongolia, are potential takeover targets, according to UBS AG.
“If you aren’t looking further afield you are just constraining yourself,” Credit Suisse’s Carlile said. Some clients “have the capacity to take on more risk in far-flung places, others don’t,” he said.
Riversdale Talks
Rio Tinto, the world’s third-largest mining company, and Mozambique coal developer Riversdale Mining Ltd. have held talks on a A$3.5 billion offer, Sydney-based Riversdale said Dec. 6.
Xstrata, the fourth-biggest mining company by sales, is paying A$514 million for Sphere Resources Ltd. to gain three iron ore projects in West Africa.
“Almost by definition there are more resources that can be found in less developed countries than developed countries” because of less exploration, said billionaire Ken Fisher, who oversees more than $38 billion at Woodside, California-based Fisher Investments Inc.
Xstrata is paying 15 Australian cents a ton for Sphere’s iron ore, based on the takeover price and stated ore resources. That compares with the A$2.55 a ton BHP paid in its A$204 million purchase of Australian explorer United Minerals Corp. in October last year.
Equinox Offer
Equinox Minerals Ltd., based in Perth and with mines in Zambia, agreed to pay two times earnings before interest, tax, depreciation and amortization when it offered A$1.2 billion last month for Citadel Resource Group, developing Saudi Arabia’s biggest copper deposit. That compares with the 22 times Quadra Mining Ltd. paid this year for FNX Mining Co.’s copper and nickel mines in Canada.
Producers can pick up assets more cheaply in developing nations based on lower reserve and resource cost multiples, Greg Fournier, head of Asia Pacific metals and mining investment banking at Merrill Lynch, the number three adviser, said in an interview.
Morgan Stanley, Credit Suisse and Merrill are the top three banks in global mining deals this year, advising on 42 transactions valued at $81 billion, according to Bloomberg data.
Morgan Stanley led with 22 percent of deals, followed by Credit Suisse with 20 percent, and Merrill, a Bank of America Corp. unit, with 19 percent. Credit Suisse ranked first for deals in emerging markets in Asia Pacific, Latin America and the Caribbean.
Rio, BHP
Rio is “actively reviewing opportunities” for small-to- medium sized acquisitions, Chief Financial Officer Guy Elliot said on Nov. 29. BHP Chairman Jac Nasser said last month the board wanted the company to continue to look for acquisitions.
Mining companies are aware of the risks of doing business in Africa, said Paul Galloway, an analyst at Bernstein in London. Rio has been in a dispute with Guinea since 2008 when the government ordered the London-based company to hand over part of the Simandou iron ore deposit. First Quantum Minerals Ltd. is trying to recover mining rights in the Democratic Republic of Congo after the government withdrew its permit.
“If commodity prices are low and the values of these assets are low, there is not too much of an incentive to go off to deepest, darkest Africa,” said Gavin Wendt, a senior resources analyst at Mine Life Pty in Sydney. “You need a higher return on your investment to offset the potential risks in investing in a place like Africa.”
Mergers and acquisitions are a faster, cheaper route to production than constructing projects from scratch, Standard Chartered Plc said in an August report. The cost of building a copper mine has more than doubled in the past five years, according to the report.
“Is it cheaper to put in new stuff today or buy stuff? Where is there less risk?” said Fisher, who is “overweight” in emerging markets and mining stocks. “My view is there is less risk in buying.”
--With assistance from Jesse Riseborough in London. Editors: Tony Barrett, Amanda Jordan
To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net.
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