Mine M&A activity falls as prices of metals rise

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Firat Kayakiran London

RISING commodity prices in the second quarter strengthened the balance sheets of mining companies, reducing the urgency of their plans to sell unwanted assets, consulting firm EY said yesterday.

The number of mining mergers and acquisitions (M&A) declined 41 percent to 112 in the quarter from a year earlier, EY said in a report. The value of the deals was $9.5 billion (R101.1bn).

Nickel prices jumped 39 percent in the quarter from a year earlier, aluminium rose 6.7 percent and copper gained 3.9 percent at the London Metal Exchange.

The largest mining companies had considered divestments as a way of reducing debt, maximising returns on capital and optimising their portfolios, the consultancy said. Stronger balance sheets had reduced the pressing need for such asset sales, EY said.

Rio Tinto, one of the companies seeking to divest unwanted assets, completed the sale of its Clermont thermal coal mine in Australia for $1.02bn in June. Anglo American is also seeking to sell assets ranging from platinum mines in South Africa to nickel operations in Brazil.

“Divestments of non-core assets from the majors will pick up pace in the next six months,” Lee Downham, the global mining transaction chief at EY, said in the report. “The industry is waiting for some commodity price stability before taking any adventurous steps, so the next half year may prove to be a waiting game.”

Former bankers and mining executives have set up companies and funds to bid for assets put up for sale by the biggest mining companies. These include former Xstrata chief executive Mick Davis, Barrick Gold’s former chief Aaron Regent, and ex-JPMorgan Chase banker Lloyd Pengilly.

Copper and nickel assets were likely to drive interest from potential buyers, EY said.

“We expect China to recommence its push for overseas assets to secure supply through partnerships in existing operations or near-term projects instead of greenfield projects,” the consultancy said. – Bloomberg


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