Melbourne, Australia — 24 May 2012 – The world’s largest mining companies, led by BHP Billiton Limited (BHP), are struggling with higher costs to complete US$200 billion in new projects, prompting them to slow work and turn instead to acquisitions and asset sales.
Bloomberg News reports that BHP and Rio Tinto Group, ranking first and third by sales, this month said they would ration capital spending because of escalating costs and a slower-than-expected global economy.
“It’s been ‘build’ for quite some time, and now it’s pushing much more in favour of potentially ‘buy’ because there are bargains out there,” Sydney-based global mining and metals leader at Ernst & Young LLP, Michael Elliott, said by phone.
Lower metals prices have made targets cheaper and spurred mining companies globally to announce US$91 billion of deals in the year to date, up 28% from US$71.2 billion in the same period of 2011, according to data compiled by Bloomberg. First Quantum Minerals Limited, African Minerals Limited and Coal of Africa Limited are potential takeover candidates, Liberum Capital Limited said.
The Bloomberg World Mining Index has lost 24% from its 2012 high in February, raising investor concern of an end to the bull market that increased commodities as much as fourfold since 1999, with price gains in 11 of the past 13 years.
“The market is increasingly pricing in the end of the super-cycle,” Liberum analysts Dominic O’Kane and Richard Knights said in a report. “The majors are re-thinking organic growth plans versus M&A as valuations fall.”
Source: Bloomberg News. For more information, click here.