Mining mergers could top 2007 record

Reuters

March 18, 2008 at 8:04 AM EDT

LONDON — Mining merger and acquisition activity in 2008 is set to top 2007's record $158.9-billion (U.S.) total as the number and size of deals escalate, PricewaterhouseCoopers said in a report on Tuesday.

“The mining industry is experiencing an unprecedented period of change driven by M&A activity that is running at record highs at all levels of the sector,” PWC's Global Mining Leader Tim Goldsmith said in the report.

The number of deals in 2007 rose 69 per cent from the previous year to 1,732 while their combined value rose 18 per cent, the report said.

Consolidation in the industry is accelerating as economic growth in emerging markets stokes demand for resources and as expansion by Russian and Chinese companies increases competition for assets.

A planned takeover of Rio Tinto by BHP Billiton, the world's largest miner, would be the world's second-biggest takeover ever and was valued at $147.4-billion when launched in February.

PWC said the total value of mining deals by Russian and Chinese companies rose six-fold between 2005 and 2007 to $32.7-billion, boosted by takeovers such as Chinalco's acquisition of Peru Copper and Norilsk Nickel's purchase of Canadian nickel miner LionOre.

As well as the rise of the super-majors and consolidation within the mid-tier and smaller companies, upstream integration moves by metal and power companies are also on the rise, according to the report.

Deals help companies diversify and find the resources to meet booming demand by filling the pipeline of development projects, bringing forward new projects and providing exposure to different commodities and parts of the world.

The credit crunch seemed to have had little impact on the consolidation drive, with the number of industry deals announced in the final quarter of 2007 more than doubling from the year-earlier period, PWC said.

On the macroeconomic factors behind the commodities boom, PWC said much would depend on the sustainability of Asian demand.

“Instabilities are likely to deliver a bumpier deal-making ride although the fundamentals for M&A activity in mining remain strong,” it said.