Largest miners to grow through acquisition in next two years: E&Y
London, May 12 2008
Most of world’s largest miners to grow through acquisition in next two years, according to Ernst & Young report.
Nearly all of the world's largest mining companies expect to grow through acquisition in the next two years, according to a new Ernst & Young global report – the year of the hunters and the hunted – launched today.
The report – based on interviews with the majority of the top 40 global mining and metals companies – reflects the sector's confidence that the boom in metals prices will continue, evidenced in recent company results. 40% of all respondents went as far to say that acquisition will be their sole growth strategy if ambitious targets are to be achieved.
Three US$50 billion-plus deals before the end of 2008
Michael Lynch-Bell, global mining and metals transactions leader at Ernst & Young, says, "The appetite for further transactions is strong and the sector is cash-rich. Concerns about resource security are inspiring new acquirers, and the credit crunch is providing new challenges for developing mining companies – 2008 will be the year that defines the hunters and the hunted."
Lynch Bell says that despite the global credit market, the rate of consolidation is not only likely to continue but could accelerate in the short-to-medium term, with the possibility of three US$50bn-plus deals before the end of the year.
2007 proved to be a record year for M&A transactions in the mining and metals sector – a total of 903 deals were completed, worth a total of US$210.8bn.
According to the report the global downturn appears to be having little impact on the sector. Michael Elliott, global mining and metals leader at Ernst & Young says, "While the cost of debt has soared, we are yet to see delays in bankable transactions because of debt availability issues, as is starting to be the case in other sectors, such as oil and gas."
Mining sector still attractive to lenders
Even when the liquidity of debt markets was shrinking, the mining sector still proved an attractive sector for lenders. The report shows that nearly 60% of all loans were made to the sector in the third and fourth quarters of 2007.
IPO activity still reasonably buoyant
This buoyancy was partly reflected in global IPO activity for the mining and metals sector. More than US$20bn was raised through new mining IPOs in 2007, with the UK, US, Canada and Australia accounting for US$14.7bn – 73% of the total funds raised for new listings by the sector last year.
Early release statistics from Ernst & Young on IPO activity in mining and metals in the first quarter of 2008, show that there have already been 41 new listings – just 18 per cent down on the same period in 2007. These new listings raised a total of US$322m, significantly lower than the total value of IPOs in the sector over the first quarter of 2007, which saw US$1.8bn raised by 50 deals, bolstered by the London IPOs of Polymetal OAO (US$604m) and Gem Diamonds (US$663m).
Lynch-Bell says that while the figures suggest that liquidity has reduced, the number of IPOs that have completed in the sector in the first quarter of 2008 is encouraging, particularly in light of current market conditions.
More divestment in 2008
Ernst & Young expects to see more divestment activity in the market through the rest of 2008 as some companies look to take advantage of high prices and discard non-core assets. "This will also be driven by the need to pay down acquisition debts, sell higher cost mines and in some cases to make forced sales due to competition regulations," Lynch-Bell concludes.
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