Global mining M&A activity intensifies in the first half of 2010

The first half of 2010 saw a frenzy of merger and acquisition (M&A) activity in the global mining sector with no stone being left unturned to uncover deal opportunities.

According to a report by PricewaterhouseCoopers (PwC), 1,324 mining deals worth an aggregate US$104 billion have been announced to-date to August 15, 2010 and the pace of deal making will likely speed up for the rest of the year. In fact, deals in 2010 are expected to outpace the 2007 peak of 1,732 deals worth US$159 billion.

“No other global sector has seen such a consistently high volume of deal making,” says John Nyholt, national leader of transaction services, PwC. “Expansion into new geographies, diversification of resource bases and an overall return to risk have characterized M&A activity in the global mining sector in the first half of 2010.”

Key Trends:

 – Gold, silver, iron ore, coal and copper continue to dominate M&A activity as companies with interests in these key resources represent 84% of all takeover targets measured by value and 74% of all targets measured by volume. Gold remains the frontrunner as nearly 40% of all acquisition targets were of entities with a major interest in gold. Meanwhile, interest in new types of resources is growing with fertilizer and rare earth elements being two new areas of focus for global mining firms. The current takeover battle for Canada’s Potash Corp, the most talked about global mining deal of the year, being a case in point.

– Despite high deal volumes, the aggregate value of global mining deals has dropped due to the decline in the number of mega-deals (deals with values of more than US$500 million). Year-to-date, 28 mega-deals have been announced, well below the peak 54 mega-deals announced in 2007. Scarce opportunities for mega deals have prompted more senior miners to acquire junior mines and exploration companies earlier in their life cycle.

– Companies headquartered in North America, largely Canada, remain the most active acquirers. In fact, 49% of all global mining deals in the first half of 2010 involved at least one Canadian or American buyer. However, Asian acquirers, most notably China, are intensifying deal-making in the mining sector. In fact, approximately 21% of all deals year-to-date involved an Asian acquirer, up from less than 10% a decade earlier.

Worth noting is that many of the Asian-led deals announced in 2010 were strategic partnerships rather than full acquisitions. Miners are increasingly looking to secure offtake or royalty agreements with Chinese entities to help finance projects. On the flip side, Asian buyers are primarily motivated to secure long-term resources ahead of further planned mass industrialization and urbanization within Asia. This new transaction type is one of the key reasons why deal volumes in the global mining sector are continuing to rise.

“The outlook for the global mining sector looks positive as we expect the pace of deal activity to intensify throughout the remainder of the year,” says Nyholt.

Going forward, PwC expects that global miners will continue to scour the globe for projects and make acquisitions in newer and politically unstable environments. Also likely is that senior miners will be increasingly interested in acquiring exploration or early-development stage miners, moving away from their traditional focus on established producers. The near-term may also see more private equity interest in making acquisitions in the mining sector with large pension funds increasingly looking at producers with projects in stable regions and smaller, resource-specific funds making more acquisitions in exploration and development-stage projects.

For more information or to download the full report, please visit www.pwc.com/ca/MiningDeals.

About PricewaterhouseCoopers’ Deals Team

PricewaterhouseCoopers’ Deals Team (www.pwc.com/ca/deals) helps clients to achieve deal success – from concept to close and beyond. As part of the world’s largest Transaction Advisory practice1, and with our Global Corporate Finance group being 2010 Upper Mid Market M&A Advisor of the Year2, the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.

About PricewaterhouseCoopers LLP

PricewaterhouseCoopers (http://www.pwc.com/) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,300 partners and staff in offices across the country. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity.

1 Source: Kennedy; “Business Advisory Services Marketplace 2009-2011” © BNA Subsidiaries, LLC. Reproduced under license.

2 Source: Acquisitions Monthly Awards 2010

For further information:

Jessica Draker, 416 869 8723, [email protected]

Kiran Chauhan, 416 947 8983, [email protected]

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