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Mergers and acquisitions reach unprecedented levels

One of some 100
BHP Billiton
operations in
20 countries
Johannesburg, South Africa – MININGREVIEW.COM — 25 March, 2008 – Mergers and acquisitions levels have reached unprecedented levels heralding a new era of super-consolidation in the global mining industry.

This is the key finding of ‘Mining Deals’, a report from PricewaterhouseCoopers reviewing international deal-making in the mining sector. It shows a huge surge in mining company mergers and acquisitions, emphasising the following highlights:

  • The volume of mining deals rose 69% from the 2006 level to 1 732 in 2007. Total transaction value was US$158.9billion (almost R1 300 billion), up by 18% on the previous year;
  • The strong upward trend covered mining companies of all sizes. Over 90% of all deals involved transactions of US$250 million (R2 billion) or less, and the number of such deals doubled in just two years from 2005 to 2007;
  • At the other end of the scale, the number of US$1billion (R8 billion) plus deals trebled, from eight in 2005 to 25 in 2007;
  • Chinese and Russian companies are making their mark with a number of key foreign acquisitions in North America and Australia. The total value of mining deals conducted by entities from these two countries rose six-fold, from just US$5.3billion R43 billion) in 2005 to US$32.7billion (R260 billion) in 2007, accounting for a fifth of total mining deal value worldwide.

The PricewaterhouseCoopers report predicts that 2008 looks set to see mining deals reach astronomical record levels as super-consolidation takes place in the market. Early in 2008, BHP Billiton announced a takeover offer for Rio Tinto with a potential deal value over the US$150 billion (R1 200 billion) mark that would shatter all previous records, the report claims. The previous highest single deal value was Rio Tinto’s 2007 US$43 billion (R350 billion) purchase of Alcon. The era of super-consolidation is being further evidenced by rumours of a Vale bid for Xstrata in a deal that could be worth US$90billion (R720 billion), it adds.
The report finds little evidence of a slowdown in deal activity as a result of the credit crunch. Indeed, the number of mining deals announced in the fourth quarter of 2007 was more than double the level recorded in the corresponding quarter of 2006, and the latest heavyweight moves by the biggest players has got 2008 mining deal-making off to an unprecedented start, it states.
PricewaterhouseCoopers South Africa mining leader Hugh Cameron said: “No company can stand aside in this ‘eat or be eaten’ environment. Everybody needs to be both on the front foot as well as looking over their shoulders. The very biggest companies are positioning themselves to achieve on a super-consolidated global scale. They face considerable competition from fast-growing companies emerging from India, Russia and China. The industry landscape is set to change dramatically.”

Looking ahead, economic slowdown in the United States, continuing financial market uncertainty and fears of actual recession will inevitably cast a cloud of uncertainty over the period ahead. However, the report concludes that while instabilities are likely to deliver a bumpier deal-making ride, the fundamentals for merger and acquisition activity in mining remain strong. Indeed, it says, 2008 looks set to be a landmark, if not a record, deal year for the mining industry.