For Mining M&A Bankers, the Deals Continue

The number of mining M&A deals will continue growing this year, but their value may slip.

Mergers and acquisition levels in the global mining market have reached unprecedented levels and a new era of super-consolidation is beginning, says PricewaterhouseCoopers. The surge in mining company M&A is particularly notable among Canadian companies, even though total deal volume has slipped.

Globally, the volume of mining deals rose 69 percent between 2006 and 2007, with a transaction value totaling $158.9 billion (U.S.). Canadian companies were targets of 32 percent of 2007's deals, compared to 23 percent in 2006. Canadian firms represented 41 percent of acquirers, up from 34 percent in 2006.

Still, Paul Murphy, leader of the PwC Canadian mining practice, noted that "more deals but lower values are a trend around the world." Nearly all - 90 percent - of deals involved transactions of $250 million or less, and the number of such deals doubled between 2005 - 2007.

PwC found little evidence of a slowdown in deal activity as a result of the credit crunch. Indeed, the number of mining deals announced in 2007's fourth quarter was more than double that of the fourth quarter in 2006.

Underpinning the trend is the quest for world scale, resource acquisition and resource diversification. High commodity prices and optimism about the mining industry's long-term growth and profitability - with sustained demand in Asia outstripping fluctuations in western demand - are pushing companies to embark on long-term growth strategies.

While the U.S. economic slowdown, financial market uncertainty and fears of actual recession will inevitably cast a cloud over near-term activities, PwC believe the fundamentals for M&A activity in mining remain strong. In 2008, the firms expects the pace of deals to continue growing, possibly reaching record levels.