2007: A record year for mining mergers

VANCOUVER — Mining industry mergers and acquisitions soared to record levels in 2007, fuelled by a new corporate philosophy of “eat or be eaten,” plus an effort to stay competitive in the growing global economy.

The recent report Mining Deals — 2007 Annual Review by PricewaterhouseCoopers indicates the volume of global mining deals rose 69% last year to 1,732 from 1,026 in 2006. The study also pegs the total value of all the transactions in 2007 at US$158.9 billion, up 18% from the previous year.

Illustrating the rampant growth seen in mining M&As, the report notes that both the number of deals and their total value were more than double the level recorded just two years earlier in 2005.”

The major auditing and professional services firm also confirms the number of deals valued at US$1 billion and higher more than tripled to 25 last year from eight in 2005.

While the biggest deal last year was Rio Tinto’s (RTP-N, RIO-L) US$43-billion takeover of Alcan — PricewaterhouseCoopers forecasts 2008 will likely surpass that in an “era of super-consolidation” with looming mega-deals such as BHP Billiton’s (BHP-N, BLT-L) takeover offer for Rio Tinto, with potential value of more than US$150 billion, and rumblings that Brazilian mining giant Vale (RIO-N) may float a bid for Swissbased Xstrata (XSRAF-O, XTA-L) worth up to as much as US$90 billion.

Canadian companies figured prominently in mergers and acquisitions activity last year. Three of last year’s top 10 deals saw Canadians as the hunters — Teck Cominco (TCK. B-T, TCK-N), Yamana Gold (YRI-T, AUY-N) and Uranium One (UUU-T)–with a cumulative transaction value of roughly US$10.2 billion. Additionally, six of the top 10 deals had Canadianlisted companies as the prey, with Alcan, LionOre Mining International, Aur Resources, Meridian Gold, UrAsia Energy and UraMin all scooped up in deals with a cumulative value of almost US$61 billion.

The study also touches on the emergence of Chinese and Russian companies as major players in the acquisition hunt. Companies from these two countries accounted for US$32.7 billion in deals last year.

PricewaterhouseCoopers sees a slowing U. S. economy, financial market uncertainties and fears of a recession taking a near-term toll on the mining market — creating “a bumpier deal-making ride” for M&As — however, sustained Asian commodity demand and the entrance of new players (including major state-owned entities) into the takeover hunt may counter this and further drive the industry consolidation trend.