Sydney, Australia — MININGREVIEW.COM — 16 March 2009 – Global mining mergers and acquisitions slumped by 40% to US$127 billion (almost R1 300 billion) last year, and the value of transactions can be expected to drop further in 2009 amid a commodity price rout.
An Ernst & Young report e-mailed from here revealed that a total of 919 transactions had taken place in 2008, compared with 903 deals valued at US$211 billion (R2 150 billion 2007.
The report added that mining takeovers had been stifled as many transactions had been “delayed, damaged or destroyed” by the global credit crunch and a slump in metal prices. BHP Billiton Limited had scrapped a US$66 billion (R660 billion) bid for Rio Tinto Group last year.
“Fears about economic growth basically trashed metal prices and equity values and therefore deals fell away and people started focusing on conserving cash,” said Sydney-based global mining and metals sector leader for Ernst & Young Mike Elliott in an interview with Bloomberg News.
The number of loans in the industry had increased threefold to 268 for a value of US$172 billion (R1 700 billion) from US$111 billion (R1 100 billion) a year earlier, according to the Ernst & Young report. The total included a US$55 billion (R550 billion) loan arranged, though not drawn down, by BHP – the world’s biggest mining company – after it had abandoned its Rio Tinto offer, the report said.
It added that takeovers in the mining industry would be boosted later this year by the “inevitable string of players who will go into bankruptcy.” Increased financing availability would also spur more deals, and investments were likely to be in underlying assets, rather than in entire companies, the report said.
“The number of transactions this year may remain quite healthy, although the value of those deals would be considerably lower,” Elliott said. “There will be continued buying from Chinese buyers, and we are seeing quite a lot of Japanese activity as well.