MINING FINANCE / INVESTMENT
Gold deals dominate in Canadian Q1 mining M&A activity-KPMG
More than 81 mining transactions were announced globally during Q1 2012 with a total value of US$90 billion; however, big value M&A mining mergers declined in Canada, says KPMG.
Author: Dorothy Kosich
Posted: Thursday , 10 May 2012
RENO (MINEWEB) -
In a global scene that saw a notable increase in mining M&A activity in the first quarter, "Canada was neither a major target nor a major acquirer," Big 4 accounting firm KPMG observed in a quarterly mining M&A newsletter Wednesday.
Nevertheless, gold was the main commodity of interest for Canadian transactions, accounting for almost 60% of mining M&A deal value and volume, KPMG noted.
During the first quarter of the year, Canada recorded 25 transactions above US$10 million in value, four of which were categorized as strategic investment by KPMG.
"After rallying in the last quarter of 2011, mining M&A activity in Canada fell back to almost the same levels as experienced in Q3 2011," said KPMG. "Deal value in the first quarter was down over 50% from Q4 2011, characterized by flower ‘blockbuster' multi-billion dollar deals."
"Only one transaction in the quarter topped the billion dollar threshold. Despite the lack of large trades, overall deal volume remained relatively steady," KPMG added.
The largest Canadian mining transaction in the first quarter was the US$1.5 billion acquisition of Minefinders by Pan American Silver. "Also in the gold space, AuRico Gold announced the sale of its Stawell and Fosterville properties in Australia to Crocodile Gold for US$105M."
Meanwhile, Canadian copper sector deals dwindled in the first quarter, according to KPMG. "Only three transactions were announced in the period for a total value of US$600M."
However, during the first quarter Rio Tinto effectively took control of Ivanhoe Mines, taking its total ownership in the huge Mongolian copper/gold development to 51%.
"One of the more interesting joint venture transactions during the quarter saw Mitsubishi Corporation acquire a 25% interest in Stillwater Mining's Marathon PGM-copper project for US$81M," KPMG noted. "The transaction represents the first foray for the trading house into platinum group metals."
In its report, KPMG observed that Canada's lower mining M&A profile in the quarter "did not prevent global M&A activity from increasing markedly. Total Q1 transaction value reached US$90Bn-a 130% increase over levels recorded in the previous quarter, driven mainly by the proposed mega-merger between Glencore and Xstrata."
"More than 81 mining transactions were announced during Q1 2012, compared to fewer than 50 during the previous quarter, representing an increase of 75% in volume-a strong rise without the Glencore/Xstrata announcement," said KPMG.
"Switzerland was both the dominant acquirer and the dominant target, capturing a 60% share of both measures by virtue of the fact that both Glencore and Xstrata are domiciled in that country. China, Chile and India combined to form about 25% of both the target and acquirer shares, while Canada played a minor role as both a buyer and a target."
Meanwhile, in the shadow of the Glencore/Xstrata deal was another significant transaction to create the world's seventh largest diversified global miner, Sesa Goa's acquisition of Sterlite Industries to create Sesa Sterlite. Sesa Goa is India's largest iron ore producer while India's Sterlite is a significant producer of zinc, aluminum and copper.
"Coal was once again a major driver of global M&A activity in the quarter, with a total of 20 transactions announced," said KPMG. Xstrata continued its consolidation of Western Canadian coal assets.
"Iron ore continues to have a major impact on the Australian mining M&A landscape," KPMG observed. "A consortium consisting of POSCO, Marubeni and STX acquired a 30% interest in the Roy Hill project in exchange for US$3.6Bn of equity funding to meet ongoing project development costs."
Roy Hill is an open-pit iron ore mine, rail and port facility under development in the Pilbara region of West Australia. Roy Hill is expected to ship 55 million tonnes of iron ore annually to the global market.