Global economic uncertainty and a drop in commodity prices has led to a marked slowdown in mergers and acquisitions in 2012, says a new Mining Deals report by PwC.
Deal volumes fell more than 30% in the first half of 2012 to 940 transactions, as compared with 1,371 transactions for the same period in 2011.
Meanwhile, the total value of deals for the first six months of 2012 was $79 billion, slightly higher than $71 billion for the same period in 2011.
Excluding Glencore’s blockbuster $53-billion offer for Xstrata, the total value of deals announced in the first half of 2012 dropped to $25 billion, a third of last year’s total.
Read: Gold buyers are paring purchases
“Even though market anxiety has led to a pullback in equity financing, most miners are in much better financial shape than during the 2008-2009 global financial crisis, and are wiser for having gone through it,” says John Nyholt, Canadian mining deals leader for PwC.
He adds, “With market conditions expected to remain tight for months to come, miners are looking for new ways to ensure future growth. M&A activity in the coming months will be spurred on by both opportunity and survival.”
Gold deals dominated M&A transactions in the first half of 2012, re-establishing its first-place position against other metals such as copper and coal. They represented the highest value of transactions at 26% in the first six months of the year and the highest volume at 29%.
Read: Mining industry underperforms in 2011
Nyholt predicts, “More gold transactions are going to take place because of lower valuations, a rising gold price, and the growing challenge to find new resources to fuel future growth.”
Also, demand is still strong in China’s despite its stunted growth. “Rapid infrastructure growth in emerging nations, in particular China, will continue to drive demand for commodities such as copper, coal and iron ore,” says Nyholt.
He adds, “Along with urbanization in other emerging nations such as India, Brazil and next Africa, this growth will allow the super cycle to continue for years to come.”