Emerging nations to drive demand and keep the ‘super cycle’ on track

Emerging nations to drive demand and keep the ‘super cycle’ on track

•Market volatility leads to more subdued mining M&A activity

Moscow, 26 Sept 2012 - Global economic uncertainty and a drop in commodity prices has led to marked slowdown in merger and acquisitions (M&A) in 2012, despite the blockbuster start with a Glencore/Xstrata transaction, according to PwC’s new Mining Deals report launched today.

All signs point to an equally sluggish second half of the year. While there were 143 deals announced in July, compared with 141 in June, volumes fell dramatically in August to 69. Deals values have averaged $3 billion per month since June, which continues to be very low.

In the first half of 2012, global mining M&A deal volume fell more than 30% to 940 transactions, compared to 1,371 for the same period in 2011. The total value of deals for the first six months of 2012 was $79 billion, slightly higher than $71 billion for the same period a year earlier, but includes Glencore International plc’s $53.6 billion offer for Xstrata plc. Excluding that deal, the total value of transactions announced drops to $25 billion, one-third of last year’s first half-year total, reflecting global market uncertainty.

Alexey Smirnov, partner, mining leader at PwC Russia and the MINEX Russia 2012 speaker, said:
“Although the year to date has been tough, with low commodity prices underwritten by high costs and a pullback in equity financing, the mining ‘super cycle’ remains on track.

“Whilst we see few buyers, now is the time when people should buy and history shows this is when bargains are achieved.

“Also, with market conditions expected to remain tight for months to come, miners are looking for innovative ways to fund projects and future growth, a trend that will continue into 2013.”

Golden commodity

Gold dominated M&A transactions in the first half of 2012, re-establishing its first-place position against other metals such as copper and coal, whose values have fallen while the price of bullion remained steady. It represented the highest value of transactions at 26% and the highest volume at 29%, excluding the Glencore/Xstrata deal.

Tim Goldsmith, global mining leader, PwC, said:
“The drop in gold equity valuations and the rising gold price is driving deals and we expect more gold M&A activity in the coming months.”

China’s growing momentum

While China’s growth has advanced by a modest 7.6% in the second quarter after decades of averaging 10% annually, demand is still strong.

Tim Goldsmith, global mining leader, PwC, said:
“Short term demand growth has reduced as China slows and the European economy struggles. The major industrialisation of the emerging world is still in its relative infancy but is the driver of the ‘super cycle’. Commentary around the death of the mining boom has been over stated and those with long term trends in mind will be able to buy bargains for the next little while.

“China is expected to become a more aggressive acquirer of resource assets as it ramps up its foreign investment targets and looks to secure metals to meet steadily increasing urbanisation.”

By PwC Russia.

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