Canada topped the global mining and metals sector as the number one target destination by total deal value in Q1 2012, says Ernst & Young.
“Canada is fast becoming a go-to destination for mining and metals transactions as companies around the world look for a secure and stable environment amid ongoing market and political volatility,” says Richard Crosson, Partner in Ernst & Young’s Transaction Advisory Services practice. “We’ve seen a number of deals, many being small domestic transactions targeting junior explorers and exploration properties.”
While continued uncertainty saw global mining and metals deal volume and value decrease by 34% and 20% respectively year over year, a strong pipeline indicates mining companies are showing an appetite to do deals. In fact, mining and metals companies completed 10 megadeals — deals over US$1 billion — in Q1 2012, twice as many as in the same period in 2011.
“The global market is active at both ends of the transaction scale, with a greater number of megadeals in Q1 2012 compared to Q1 2011 but with a lower average deal size,” says Crosson. “These deals are being driven by the scarcity of large, quality assets and fierce competition for them.” The large number of smaller deals — the average deal size for the quarter being US$130 million, down from US$134 million in Q1 2011 — reflects an increasing interest in exploration projects.
“The need to secure raw materials, increase penetration in growth markets, achieve greater vertical integration and consolidate market share will continue to drive M&A this year,” says Crosson. “Canadian mining and metals companies, unwilling to postpone their growth agenda, are prepared to act opportunistically and strategically.”