By Alex MacDonald
LONDON--Global mining and metals mergers and acquisitions
activity picked up in the second quarter and is forecast to rise
further, albeit at a slow but steady pace, in the second half of
the year as miners begin to cautiously consider growth
strategies.
Global mining and metals deals by value rose 18% to $21.4
billion in the second quarter of this year compared with the
previous quarter, said consultancy and accounting firm Ernst &
Young in a report Wednesday. The figure includes BHP Billiton
Ltd.'s (BHP) $8.7 billion demerger of the South32 Ltd. (S32.AU)
unit. Excluding the spinoff, deal value would have only risen 13%
on quarter.
Meanwhile deal volume rose 2% on quarter to 86 deals in the
second quarter.
"With weak commodity prices putting pressure on margins,
earnings and debt serviceability, the sector continues to be
cautious against countercyclical investment," said Lee Downham,
E&Y Global Mining & Metals Transactions Leader.
Mr. Downham said there are limited signs of strategic buying
emerging at the lower to mid range of the market, which suggests
some miners may be positioning themselves for the next round of
growth. Ernst & Young expects a slate of high-value deals could
close in the second half, including Potash Corp. of Saskatchewan
Inc.'s (POT.T) $9 billion takeover of German potash and salt
producer K+S AG (KPLUF) as well as base metal miner Independence
Group NL's (IGO.AU)$1.3 billion takeover of Sirius Resources NL
(SIR.AU).
There were 25 gold deals in the second quarter, making it the
most highly sought after commodity, accounting for 29% of the total
deal volume during the period. Ernst & Young said pure
gold-play companies continue to eye purchases and tie-ups in order
to position themselves for profit growth in a lower-gold price
environment.
Excluding the BHP Billiton demerger of South32, coal accounted
for 43% of total deals by value in the quarter, trumping gold.
However, this included two megadeals, with the vast majority of
M&A being low-value deals reflecting the distress in the
sector, the consultancy firm said.
On the financing front, Ernst & Young said that the global
mining and metals industry raised $138.4 billion in funds from debt
and equity markets during the first half of the year compared with
the same period a year earlier.
Intial public offerings by value dropped a whopping 71% to $335
million in the first half of this year comared with same period a
year before as the number of IPOs dropped to 6 from eight over the
same period. Follow-on share issues, however, nearly doubled to
$20.5 billion from $10.4 billion in the same period as access to
loans dried up, falling by a third to $64 billion.
The amount of corporate debt rose 52% on year to $52.6 billion
in the first half, with 40% of that amount raised by coal miners
alone.
Write to Alex MacDonald at alex.macdonald@wsj.com
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