Market uncertainty, volatile commodity prices and tens of billions of dollars in writedowns have forced the volume of mining mergers and acquisitions both in British Columbia and globally to drop more than 30% in the first half of 2013.
According to a mid-year global mining report by PricewaterhouseCoopers (PwC) released September 5, global M&A activity by volume fell by 31% between January and June 2013. In total, there were 649 deals completed during that period.
The value of global M&A deals fared much worse, plummeting 74% between January and June to nearly $22 billion.
B.C. M&A activity mirrored the global trends, with deal volume in the province dropping 33% and deal value falling 34%.
The most active M&A regions in 2013's first half were Russia and Kazakhstan. Russia accounted for 26% of M&A deals between January and June, while Kazakhstan accounted for 19%. Rounding out the top three was the United States at 11%.
Last year, Canada, the United Kingdom, Switzerland and China were the busiest regions for deal activity.
Gold and copper projects were the most popular targets for M&A deals, with gold representing 36% of all transactions by value and copper accounting for 12% of deals by value.
The report said Chinese demand for commodities will remain strong as economic growth in China is expected to be between 7% and 8%.
This relative stability in the Chinese economy is good news for B.C., said Philip Heywood, a PwC director of transaction services who focuses on mining deals.
"There was some concern about China's slowdown, but with growth at 7-8%, there is still a need for base metals and construction materials. There is still a lot of urbanization occurring in China," said Heywood.
"And a lot of the resources they need are in B.C."
The first half of 2013 has seen a new player emerge in the M&A deals – private equity firms.
Heywood said private equity has been "kept on the sidelines" of mining acquisitions because equity values of mining firms have been high and there's been a lot of competition for deals.
But there is much less competition in the current market and equity values have come down to more manageable levels – which is a combination that appeals to private equity firms, Heywood added.
"We're going to see a renewed interest in the sector and more deals get done between private equity and mining," he said.
"I think, in the current environment, private equity has the cash available to make deals."
Other highlights of the PwC report are:
- the largest M&A deal was Russia's Mikhail Prokhorov selling his 37.8% stake in Polyus Gold International (LSE: PGIL.L) for $3.62 billion;
- the biggest deal by a B.C.-based buyer was Capstone Mining's (TSX:CS) $650 million purchase of BHP Billiton's (NYSE:BHP) Pinto Valley copper mine in Arizona;
- gold miners have taken writedowns totalling US$25 billion;
- the average deal value in 2013's first half was US$52.2 million, up from the average value of US$47 million over the same period last year. Last year's average, however, does not include Glencore International's (LSE:GLEN) US$54-billion takeover of Xstrata, the largest-ever takeover in the sector.
