Commodity Price Gains Ease Urgency of Mining Disposals, E&Y Says

Rising commodity prices in the second quarter of the year strengthened mining companies’ balance sheets, reducing the urgency of their plans to sell unwanted assets, Ernst & Young LLP said.

The number of mining mergers and acquisitions declined 41 percent to 112 in the quarter from a year earlier, E&Y said in a report today. The value of the deals was $9.5 billion.

Nickel prices jumped 39 percent in the quarter from a year earlier, aluminum rose 6.7 percent and copper gained 3.9 percent at the London Metal Exchange. The largest mining companies consider divestments as a way of reducing debt, maximizing returns on capital and optimizing their portfolios, the consultants said. Stronger balance sheets have reduced the pressing need for that, according to E&Y.

Rio Tinto Group, one of the companies seeking to divest unwanted assets, completed the sale of its Clermont thermal-coal mine in Australia for $1.02 billion in June. Anglo American Plc is also seeking to sell assets ranging from platinum mines in South Africa to nickel in Brazil.

“Divestments of non-core assets from the majors will pick up pace in the next six months,” Lee Downham, global mining transaction chief at E&Y in London, said in the report. “The industry is waiting for some commodity price stability before taking any adventurous steps, so the next half year may prove to be a waiting game.”

Former bankers and executives in the industry have set up companies and funds to bid for assets put up for sale by the world’s biggest mining companies.

Davis, Regent

These include former Xstrata Plc Chief Executive Officer Mick Davis, Barrick Gold Corp.’s former CEO Aaron Regent, and ex-JPMorgan Chase & Co. banker Lloyd Pengilly.

Copper and nickel assets will likely drive interest from potential buyers, E&Y said.

“We expect China to recommence its push for overseas assets to secure supply through partnerships in existing operations or near-term projects instead of greenfield projects,” the consultant said. “Australia, as a relatively safe environment for doing business, remains slated as a favorite investment target going forward, particularly from Asian investors.”

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