According to EY’s Mergers, acquisitions and capital raising in mining and metals 1H 2013 report released today, the trend seen in the six months to June 30 points to a third consecutive year of declining deal volumes.
During the first half of 2013 there were 350 deals worth $US78.6 billion ($A84.7 billion).
Deal value was up 41% thanks to the Glencore Xstrata $37.8 billion “mega-merger” and First Quantum Minerals’ $5.1 billion takeover of Inmet Mining Corporation.
But the mega deals – those worth more than $1 billion – accounted for 80% of overall deal value, compared to 30% last year.
Despite the fall in price in the past six months, gold was the most targeted commodity by value, increasing 18% year on year to $8.9 billion, driven by domestic deal activity in Russia, though deal volume declined by 23%.
Australian deals made up only a small portion of the total, with 46 deals with a total deal value of $1.7 billion done in the first half.
Broken down, eight transactions were inbound deals, worth $923 million, outbound deals covered 15 transactions worth $141 million, while domestic deals accounted for half of the total with a value of $618 million.
“Low valuations, divestitures and cash-strapped juniors have set the stage for a buyers’ market,” EY Global Mining & Metals transactions leader Lee Downham said.
“However, mining and metals companies remain cautious about investing capital.
“A sign of sustained improvement in commodity prices may be needed to trigger an increase in competitive buying activity of the many divested assets coming to market.”
Downham said non-traditional investors such as state-backed companies or private equity firms were increasingly targeting the resources sector.
“Those funds that can afford to hold an asset until the cycle returns can see real value in the market right now,” he said.
“But if your investment horizon is short, as many public shareholders’ are, then the decision to invest the capital is not straightforward.
“Additionally Asian state-owned enterprises are expected to remain strong contenders for mining and metals assets of strategic interest.”
On the capital raising front, there were 1191 issues for $157 billion worldwide, while Australian raisings accounted for 310 issues with total proceeds of $7.2 billion.
“We are hopeful that this is the bottom of the cycle for capital raising,” Downham said.
“There is a sense that companies are beginning to think about going back to equity markets and we are beginning to see companies preparing for initial public offerings when the market returns.”
Loan proceeds of $89 billion were closed from 80 loan packages, a 46% increase in proceeds due to some large refinancings.
The next largest source of raisings were bond issues, though $50 billion raised was a 12% drop, despite a 34% rise in volume.
Convertible bond issues saw the highest value growth, rising 210%, to reach proceeds of $5.9 billion but volume fell 5% to 56 issues.
Companies raised $11 billion in equity in the first half of the year, though $2.3 billion raised by juniors was a 53% slump.
The report also highlighted the slump in the IPO market, with just 12 IPOs globally raising $459 million – a 69% fall over 2012.
In Australia, there were only four IPOs which raised $41 million.
