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Mining M&A may double this year

Ernst & Young “’ says
mining mergers and
acquisitions may
double this year
Johannesburg, South Africa — 16 February 2010 – The value of international mining mergers and acquisitions may more than double this year, ending a two-year decline as China and India seek to secure supplies of raw materials.

Revealing this in an interview here with Bloomberg News, Ernst & Young’s Global Mining and Metals leader Mike Elliot suggested that the value of mining mergers and acquisitions might rebound to 2006 levels, when US$175 billion (R1 300 billion) of deals had been done, after halving to US$60 billion (R450 billion) last year. Deals had peaked at US$210 billion (almost R1 600 billion) in 2007, according to a report by the consulting company.

The report added that mining companies such as Anglo American Plc and Vale SA had sold a record amount of dollar bonds last year to bolster war chests for acquisitions, expansions and buybacks. China “’ the world’s largest metal consumer “’ might add to last year’s record US$32 billion (R240 billion) spending on resource acquisitions.

“Many mining and metals companies are looking for acquisitions to fast-track supply pipelines, driven by confidence in ongoing underlying demand in China and India,” Elliot said. “We are seeing a lot larger lists of potential buyers than there are assets available.”

China led acquisitions last year, accounting for 24% of all deals, compared with 18% a year earlier, the Ernst & Young report continued.

“There may be the same amount of interest from China this year,” Elliot said. “The Chinese have learned very quickly how to do these deals successfully,” he added.

Companies making acquisitions may use proceeds from bond sales as an alternative to bank financing, he said.