Deals intensify

Finance

The pace of deal activity is intensifying in the mining and metals sector. The value of pending deals is already four times the US$40.6 billion generated in the first half of the year, and the pace of this activity "will continue to accelerate", according to Ernst & Young in its latest Global Mining & Metals Transactions Report.

The leader of E&Y's global mining and metals team, Mike Elliott, said the volume of completed deals in the first half of 2010 was up 20% to 544, compared with the same period last year. The financial service provider noted that there were over 2,100 deals pending, with a cumulative value of US$141 billion.

In its first ever half-year update of its annual report, the financial services group concluded "the value and volume of deals in the global mining and metals sector is set to soar, driven by competition to secure raw materials".

While Australia was the top destination for investment in 2009, Canada took top spot in the first half of the year, combined with a significant increase in activity in Latin America. E&Y expects, however, to see continued diversification of deal destination, with a lot more activity in Africa and Central Asia in the next 6-12 months.

Initial public offerings began to make a cautious return, with 53 IPOs in the first half of 2010, raising US$6.1 billion (up from 19 and US$1.8 billion, respectively, for the same period last year). While the ASX and TSX dominated by volume, Hong Kong continues to emerge as an exchange of choice in the sector, with the largest single IPO (UC Rusal’s US$2.2 billion float).

Unfortunately, bank debt continued to decline, with fewer loans closed in the first half compared with the same period last year. Moreover, nearly two thirds of the proceeds were used to restructure, or extend, existing financing facilities. Globally there has been no recovery of bank lending into the sector but the bank lending being made available to BHPB in its bid for PotashCorp may signal a long awaited change in sentiment.