Mining deals to pick up in 2014 after slow year
THE NUMBER of deals in the mining sector is expected to rise this year, after hitting a seven-year low in 2013, according to new research released today.
The report from accountancy firm EY shows that deal volumes – excluding the $46bn (£28bn) Glencore Xstrata merger – fell 25 per cent last year to 702, while the total value of the transactions, excluding Glencore Xstrata, fell 16 per cent to $87.3bn.
It is the lowest number of deals in the mining sector since 2006 and the lowest global deal value since 2009.
The number of stock market flotations dropped 70 per cent year-on-year to just 26, raising $800m.
“The extreme price volatility and rapid changes to the global economy in 2012 and into 2013, combined with large impairments and senior management changes across the sector, meant the risks in doing deals in 2013 were just too great given the moving base on which decisions needed to be made,” said Lee Downham, mining and metals transactions leader at EY.
A slowdown in growth from China, the world’s largest consumer of commodities, has dragged down prices over the past year and hit the sector hard. Larger miners who over-expanded during the commodities boom are now drastically cutting costs and divesting non-core assets to turn around their balance sheets.
But EY predicts that investors will show a renewed interest in the sector in 2014. “Private capital funds spent 2013 raising capital and we expect that to be deployed in 2014,” said Downham. “We estimate these investors have more than $10bn deal capacity across the sector and we expect to see some big deals being done over the next year.”
A few investors have already started to eye opportunities. Audley Capital, the natural resources investment firm co-founded by former Anglo American executive John MacKenzie and industry veteran Julian Treger, plans to float a mining venture later this year.