Miners Starved of M&A Set to See Deals Revive Following Cutbacks

  • Macquarie survey shows deals should pick-up from decade-low
  • Rio Tinto, Barrick seen leading buyers in copper, gold: bank

The metals and mining world might be about to see a resurgence in deal-making.

Mergers and acquisitions in the sector reached a decade-low last year, accounting for 3 percent of transactions across all industries, Macquarie Group Ltd. said. As long as commodities don’t plunge, weaker prices in the second half may spur more deals as buyers gain the upper hand and sellers become more desperate, according to the bank’s survey of more than 60 companies.

This year “could mark the turning point in deal activity," Macquarie analysts including Alon Olsha said in a report Wednesday. "2016 should be the nadir for deal firepower."

The Bloomberg Commodity Index reached the lowest in more than two decades in January amid slowing demand from top user China following years of over-investment in supply. Producers responded by cutting output, jobs and exploration spending and reducing debt. While that helped raw materials enter a bull market this week, prices are still more than 60 percent below a 2008 peak.

There are signs of deals picking up. Freeport-McMoRan Inc. last month agreed to sell its stake in a Democratic Republic of Congo copper mine and Anglo American Plc recently disposed of its niobium and phosphates business. Glencore Plc is selling two copper assets and exploring options for a gold mine in Kazakhstan.

Future Returns

"For natural resources companies, growth is not simply an advantage over peers,” Macquarie said. “It’s an existential imperative as resources are finite and must be replenished. The sector must guard against capital austerity today compromising on growth and returns tomorrow.”

A total of 143 metals and mining firms covered by the bank would be able to make $61 billion of deals this year, it said. While that’s down from $332 billion in 2011, the figure should rise to $122 billion by 2018, Macquarie said. Activity may pick up as the majority of those surveyed said they intend to make some kind of asset “reshuffling” in their portfolios in the next 12 to 18 months.

Copper and gold assets are the most desired by producers and Rio Tinto Group and Barrick Gold Corp. may be the standout buyers in their industries, the bank said. Rio Tinto, the world’s second-biggest miner, is one of the few with “significant deal firepower,” able to spend $11 billion to $16 billion, Macquarie said.

Others best positioned for deals include BHP Billiton Ltd. in coal, South32 Ltd. in copper, nickel and zinc and Mitsui & Co. in copper and coal, according to Macquarie. Antofagasta Plc and Sibanye Gold Ltd. could also be set to purchase assets, it said.

The chance of large-scale mergers and acquisitions is still limited because most would fund deals through debt or excess cash. Good assets are in short supply and expensive valuations are the main obstacles, the bank said.

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