China Minmetals Corp., the nation’s biggest state-owned metals trader, said the recent drop in share valuations of global mining companies is throwing up “a lot of opportunities” for potential acquisitions.
“The market is experiencing a downturn and we do see a lot of opportunities, but we would evaluate each one of them very carefully,” Zhang Yuanrong, senior vice president of the Beijing-based company, said today in an interview in Melbourne.
Global growth concern has driven a 23 percent drop in the Bloomberg World Mining Index in the past six months. BlackRock Inc., which manages $36 billion in natural resources, said this week it expects “the massive” industry consolidation in mining to continue, driven by low valuations of companies.
“The expectation in the market has come back to a level where you can have” a conversation that’s sensible on valuation, Andrew Michelmore, chief executive officer of the company’s Hong Kong-traded unit Minmetals Resources Ltd., said today. “Whereas before, with the same value in mind, the conversation was not worth having because” of expectations of rising prices, he said.
Mining companies are trading at 9.35 times their estimated earnings on concern over the global economy, about half their average in the past five years, according to data from the Bloomberg World Mining Index.
There were $132 billion of mining deals in the first nine months of the year, up from $79 billion for the same period last year, according to a report this week by Ernst & Young LLP.
Rio Tinto Group, the world’s second-largest mining company, this month said it plans to sell 13 aluminum assets, including smelters and alumina plants from Australia to the U.S. in a bid to improve the group’s financial performance.
“They’re only selling off their high-cost, smaller assets,” said Michelmore. “You have to recognize they’re not tier-one assets.”
Iron ore prices, which dropped this week to a 15-month low of $127.40 a metric ton on the cash market in China, may fall further to $120 a ton, Zhang said.
“In the longer-run, I think the prices will be moderated because the need is there,” he said. “In China we have a lot of steelworks.”