As discussed in our latest update on M&A activity in the mining industry, there has been a recent and substantial rise in deal volume and value in the industry. This is exciting news for mining companies that have suffered from a sustained downward trend in M&A activity as a result of low and volatile commodity prices in addition to political and business-related barriers.
A recent report (the Report) by KPMG elaborates on this recent surge in activity, focusing on each commodity, geographical region and asset (according to their stage of development) most impacted from this increase. Certain of the Report’s findings are set out below:
Gold and copper transactions account for well over the majority of global M&A activity in the first half of 2016. Gold transactions accounted for 20% of deal value globally, second only to copper transactions, which accounted for a whopping 59%. Further, gold transactions accounted for five of the top 10 largest transactions while copper accounted for five (5) of the top six (6).
Asia and Africa have now become the principal location of acquisition targets, accounting for the majority of deal volume and value across all continents. While Asia leads in both categories globally, Africa is the primary recipient of the recent surge in mining M&A activity as it has seen the largest increase in both deal volume and value across all continents in the first half of 2016.
Stage of development
Naturally, those transactions involving producing assets continue to dominate deal value in the first half of 2016. More troublesome however, is the fact that these transactions have seen a steady and considerable increase in deal value (a 38% increase to an average now of $800 million) while transactions involving assets in exploration or development stages have seen a subtle (if at all) increase in deal value, remaining steady at an average of $20 million and $250 million, respectively. Despite this disparity, transactions involving assets in the exploration stage continue to dominate total deal volume globally.
Given these circumstances, companies that own assets in the exploration or development stage may want to avoid selling the asset and pursue alternative forms of financing or, at least, offer a right to a royalty (or other interest) as oppose to equity in the asset. Indeed, with commodity prices looking to be on the rise, it may be worthwhile to hold on to your assets to avoid selling low.
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