Mining Deals: 2009 Annual review

 

In 2009, mining M&A saw significant decreases in values and also changes in the characteristics of buyers and sellers.

 

Sellers were acting largely through necessity to strengthen balance sheets. This was particularly so where viable capital raising options had been exhausted for survival rather than seeking expansion and development capital. As debt markets contracted buyers were limited to those with the financial capacity, and those who continued to take a long term view on the resources sector.

 

In many ways, 2009 mining M&A was a story of:

  • Consolidation of smaller players - as evidenced by an increase in total deals in 2009, but a significant contraction in total deal value.

  • China's continued desire to seek assets offshore. As the fall out from the global economic downturn to pervade the rest of the world there was significantly less competition for the Chinese when they were vying for mining assets. This enabled more China "going global" deals than ever before. By years' end, competition from many other nations, and a broader cross section of Chinese buyers, has made the competitive landscape very different for 2010.

  • A combination of distressed assets being sold and a level of caution by players who have historically been acquisitive.

 

In hindsight, 2009 was perhaps a rare opportunity for buyers. We may have seen some of the cheapest mining transactions that will occur for some years. Indeed, 2009 could be the year of missed opportunity as most buyers were unable to capitalise on the low prices due to strained balance sheets, conservatism /caution and surprise as to how rapidly the global markets recovered. The recovery enabled distressed sellers to hang on and achieve much better outcomes.

 

Looking forward, cautious optimism appears to be prevailing and M&A activity should return in line with increasing commodity prices, credit availability and investor confidence.