Mining M&A likely to cool down

Banele Ginindza

Flatter activity in mining mergers and acquisitions (M&As) was expected over the next year as mining companies consolidated and restructured, with fewer high-value transactions, analysts said yesterday with the release of 2012 figures that told of steeper drops in big deals since the financial crisis began in 2008.

According to Ernst & Young’s report, Mergers, Acquisitions and Capital Raising in Mining and Metals: 2012 Trends, 2013 Outlook, released yesterday, the $2.3 billion (R20bn) of activity seen last year in South Africa was way below the heights of over $13bn in activity last seen in 2001.

The director for mining and metals transaction advisory services, Michael Bosman, said about $8.4bn of activity trickled down to South Africa out of the African continent’s $20.2bn piece chipped off the global $104bn pie.

He said the $8.4bn was the largest single stake to a country but it too was distorted by the nearly $5.2bn deal involving mining conglomerate Anglo American buying most of the stake it did not already own in De Beers, which was a once-off deal and more of a restructuring than an outright acquisition.

“What is notable from the trends is while South Africa was the top African destination the numbers are somewhat skewed by a small number of large deals. It also appears that the drivers of many South African deals were different to those in the other less mature African markets, and mainly reflected the outcome of portfolio optimisation by the majors, and industry restructuring driven by cost and labour pressures.”

Excluding the Anglo-De Beers deal, it meant that the $2.3bn in deals last year was consistent with the figures in 2011.

According to Ernst & Young, state-backed and financial investors’ appetite for M&As, combined with divestments, will drive a recovery in mining and metals deal volumes and value in 2013, following a slow and patchy year in 2012.

The report shows that there were 941 completed deals with a total value of $104bn in 2012, down 7 percent in volume and 36 percent in value on 2011.

African-focused deals made up 21 percent of global deal value, an increase from 13 percent in 2011. This represented $20.2bn of deals across the continent, although marginally down 3 percent in absolute terms. South Africa accounted for $8.5bn of deal activity.

Globally, the annual report shows it is the lowest number of deals since 2008 and the smallest by value since 2009 at the height of the financial crisis.

“Our analysis shows that the share of deal value by ‘non-traditional’ acquirers has grown year on year to account for 31 percent of total deal value in 2012, compared with just 21 percent in 2011. State-backed and financial investors account for 69 percent and 15 percent of this proportion, respectively.”

A renewed focus on cost savings and capital optimisation would also see continued divestment of non-core or underperforming assets.

Bosman said lower price expectations in the mining sector, along with tax increases and price pressures, were expected to contribute to flatter activity.