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New class of investors in SA mining

Johannesburg, South Africa — 20 February 2013 – State-owned enterprises, especially in China, are emerging as a new class of investors in the global mining industry, according to Ernst &Young director of transaction advisory services Michael Bosman.

Commenting on the research conducted by Ernst & Young on the latest trends in mergers and acquisitions in the global mining sector, he was quoted by BDlive as saying that although the value of financing raised last year fell as traditional investors reduced their exposure due to softer commodity prices, there was a surge in investments in the sector by ‘non-traditional investors’ such as state-owned enterprises, commodity traders and sovereign wealth funds.

Bosman added that this growth in the new form of investor was largely attributed to the contraction in traditional funding sources, the ‘lack of introspective’ behaviour that had led to reduced appetite for mergers by the large miners, price volatility and the perceived gap between management and market valuations for mining assets.

“The emerging valuation gap, where buyer and seller fail to agree on a sale, has stunted overall mergers and acquisitions, with Chinese private equity firm Cathay Fortune’s now lapsed hostile takeover bid for Australian copper junior Discovery Metals, as a prime example,” he remarked.

As a result of these factors, both the value and volume of mergers and acquisitions completed in the mining and metals sector decreased, with a 7% drop to 941 deals completed last year, amounting to a 36% drop in value to US$104 billion.

African-focused deals made up 21% of global deal value, an increase from a 13% share in 2011, representing US$20.2 billion. South Africa accounted for US$8.5 billion of activity, driven largely by Anglo American’s acquisition of an extra 40% stake in De Beers, and Rio Tinto’s acquisition of BHP Billiton’s stake in Richards Bay Minerals.

Source: BDlive. For more information, click here.