By Alex MacDonald
LONDON--Global mergers and acquisition activity in the mining
and metals industry dropped by about two-thirds on year in the
first quarter as mining companies adopted a "wait and see" approach
to investment due to the continued drop in commodity prices and
uncertainty about the health of the global economy, said
consultancy and accountancy firm PWC.
M&A activity in metals and mining in terms of value dropped
to $6.8 billion in the first quarter of this year, compared with
$20.1 billion in the same quarter a year before. Meanwhile, the
number of deals also decreased about 45%, to 18 deals from 33
deals, resulting in an average deal value of $379 million in the
first quarter of 2013 compared with $610 million in the same
quarter a year before.
The aforementioned figures were based on deals worth $50 million
or more.
The total volume of transactions dropped to its lowest since the
first quarter of 2009, and total deal value just above that of the
first quarter of 2010.
"Broad economic uncertainty in the advanced economies and the
overall decline in commodities pricing have all contributed to the
drop in deal activity in the first quarter, as metals companies
returned to the sidelines with a 'wait and see' approach," said
Sean Hoover, U.S. Metals Leader at PWC. "Given the current economic
climate, players in the metals sector remain in a holding pattern
regarding acquisitions and are looking inward by investing in
capital improvements to enhance their operational effectiveness,"
he added.
PWC said that financial investors were the most active players
in the mining and metals sector in the first quarter, accounting
for nearly 60%, or $4 billion, of the total deal value.
More than half of the rise in financial investor M&A was
attributed to two deals: The $1.15 billion acquisition of
Sweden-based Hoganas AB (HOGA-B.SK) by its largest shareholder,
Lindengruppen and the purchase of a 15% equity stake in
ArcelorMittal Mines Canada, a unit of steelmaker ArcelorMittal
(MT), for $1.1 billion. The stake was purchased by a consortium
that includes private equity firm EQ Partners and other investors
such as South Korea's steelmaker Posco (005490.SE).
In terms of M&A by geography, China drove the deal volume,
accounting for six of the 18 deals. Mr. Hoover said the growth of
China's gross domestic product in the latter part of 2012 and the
improvement in the country's Purchasing Managers' Index in March is
helping bolster M&A appetite from the world's largest consumer
of many raw materials. "Both point to China's continued activity in
the metals M&A space with smaller deals driving deal volume,"
he said.
In terms of M&A activity by product category, there were
four categories to choose from: steel, aluminum, iron ore, and
"other," which includes copper, nickel and other non-precious
metals.
PWC said that the "other" category drove M&A mining and
metals activity in the first quarter, diverging from the historical
trend of steel being the main player. Of the four categories, the
"other" category accounted for about 47% of the total deal value,
while steel accounted for 25% and aluminum made up 8% during the
first quarter of 2013.
According to PWC, this change was driven more by a decline in
steel activity rather than any intrinsic increase in deal activity
within the segment.
"Until the economy recovers, the metals deal environment may be
focused on smaller deals for the rest of the year, as players
continue to direct their attention internally while keeping a
watchful eye for the right transaction opportunities," added Mr.
Hoover.
Write to Alex MacDonald at alex.macdonald@dowjones.com