London, 04 March 2009

PricewaterhouseCoopers report

Following two years of record M&A activity, 2008 has turned out to be a year of extremes, according to Mining Deals* 2008, the annual review by PricewaterhouseCoopers of mining sector M&A activity.

The earlier part of the year followed the previous year's buoyant pattern before plunging in a sudden dizzying vortex in the final months.

Many transactions that got to announcement stage did not close. This is why deal records were not broken as 2008 was a year if record bid announcements, however, the decision of BHP Billiton not to pursue its offer for Rio Tinto will probably be the main event of the 2008 mining deals year. This was not the only bid that failed to progress - there were many others such as Xstrata bidding for Lonmin.

Many companies that had spent the earlier part of the year doing deals or resisting unwelcome overtures finished the year looking at overstretched balance sheets, preparing for write-downs, and welcoming back potential buyers with open arms.

The most significant surge in deal activity came in Brazil with total deal value in South America as a whole rising dramatically from US$8.7bn in 2007 to US$22.8bn in 2008. US$17.7bn of the region's deal value was centred on Brazil - up nearly fivefold from the US$3.6bn total Brazilian mining deal value of 2007.

AÂ large increase was also seen in deals involving Chinese buyers with the value of deals rising fourfold from US$6.7bn in 2007 to US$25.5bn in 2008. This trend is continuing and, in fact, increasing in 2009 with deals announced in February by Chinalco (a $19.5 billion transaction with Rio Tinto), China Minmetals (a $2.5 billion bid for Oz Minerals) and Hunan Valin ($0.9 billion investment in Fortescue).

Tim Goldsmith, PricewaterhouseCoopers's Global Mining Leader, comments: "We are witnessing a unique deal environment that will reshape much of the sector's ownership. The rapidity of commodity and equity price falls, combined with the immense financing constraints stemming from the financial crisis, has left the sector polarised between the strong and the weak."

"Chinese investors have an unprecedented window of opportunity to get in ahead of competitors and gain access to targets that might be denied to them in normal circumstances."Mining Deals* 2008 highlights how the industry experienced a 'violent downward tailspin' in the space of a few months, turning much of the deal-making in the sector upside down:

Deal volumes plummeted 61% in the fourth quarter of 2008 towards levels last seen in 2005.

Many companies that had spent the earlier part of the year doing deals or resisting unwelcome overtures finished the year looking at overstretched balance sheets, preparing for write downs, and welcoming back potential buyers with open arms.

Tim Goldsmith says: "Looking forward the constraints and contrasts in the market will create their own impetus for deal momentum. Entities with balance sheet strength will regard the current environment as a buying opportunity although many may be content to bide their time for the right conditions to emerge."

"Access to equity and debt has dried up for many small to mid-cap mining companies. Those with portfolios that are at the development stage or that are not sufficiently revenue generating will have to sell assets to survive. The spate of impairment announcements and write downs will intensify and, across all tiers of the industry, we are likely to see considerable sector reshaping as stronger companies seize opportunities to acquire assets at low prices."

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www.pwc.com/miningdeals