PricewaterhouseCoopers released a 2013 mid-year report on global mining deals. The report, Deals in the Dumps, focused on key trends and changes that have emerged in mining M&A throughout 2013. From a purely numbers perspective, the report noted that M&A activity in the mining industry has been slow thus far in 2013. There were 649 deals in the first half of 2013; down 31% from 2012 and down 54% from 2011. Deal value was down as well; approximately 21% from January to June compared to the same period the previous year. The numerical changes, however, are not the only things to take note of on the M&A field.
Major public mining companies have largely switched from the role of buyers to sellers. The sale of assets by major public companies is usually rare, but there was an especially striking shift in the market given that the M&A landscape over the past few years has been marked by a steady stream of acquisitions by these companies. PwC’s report noted that due to rising operating and production costs, dropping commodity prices and slower global economic growth, many large mining companies have been forced to take significant write downs. The result is that those companies are now looking to reduce debt, raise capital and improve both balance sheets and shareholder returns. Major companies are therefore now trying to unload non-core assets and have taken the position of seller in the marketplace.
As major mining companies are primarily looking to sell, new buyers have taken center stage. Most notably, new buyers include private equity funds and sovereign wealth funds. These funds are looking for long-life, low-cost projects and are keen to pick them up at lower prices; the market today is poised to offer just that. Further, funds are in a great position to take advantage of the current marketplace as they tend to have more money available to acquire new assets than other mining companies currently do.
There were few traditional takeovers of entire companies in 2013. Instead, joint ventures and spinoffs have become the dominant deal formation. PwC’s report noted that this is in line with the strategy of major public companies trying to sell off their non-core assets. The report also said that as the mining industry pushes through the downturn in the cycle we can expect to see more of these types of deals going through.
2013 saw the continuation of last year’s acquisition target trends. Gold and copper were the most active minerals for buyers and sellers in the first half of 2013, both by deal size and number of deals. Iron ore and coal, which have previously been the focus of M&A, took a back seat. This is due in part to the lower prices of gold and copper, which forced certain producers to sell and presented opportunities for others to buy at favorable prices. PwC’s report predicted that this trend would continue into 2014.