Global Mining M&A Drops 40% to $127 Billion, Ernst & Young Says

By Jesse Riseborough

March 16 (Bloomberg) -- Global mining mergers and acquisitions slumped 40 percent to $127 billion last year and the value of transactions will drop further in 2009 amid a commodity price rout, according to Ernst & Young LLP.

A total of 919 transactions took place in 2008, compared with 903 deals valued at $211 billion in 2007, Ernst & Young said in an e-mailed report today.

Mining takeovers were stifled as many transactions were “delayed, damaged or destroyed” by the global credit crunch and a slump in metal prices, the firm said. BHP Billiton Ltd. scrapped a $66 billion bid for Rio Tinto Group last year, in what would’ve been the world’s biggest mining takeover, as the worst recession since World War II slashed demand for minerals.

“Fears about economic growth basically trashed metal prices and equity values and therefore deals fell away and people started focusing on conserving cash,” Mike Elliott, Sydney-based global mining and metals sector leader for Ernst & Young, said in an interview.

The number of loans in the industry increased threefold to 268 for a value of $172 billion, from $111 billion a year earlier, Ernst & Young said. The total includes a $55 billion loan arranged, though not drawn down by BHP, the world’s biggest mining company, after it abandoned its Rio Tinto offer, the report said.

Takeovers in the mining industry will be boosted later this year by the “inevitable string of players who will go into bankruptcy,” the report said. Increased financing availability will also spur more deals, and investments will likely be in underlying assets rather than in entire companies, it said.

Chinese Investment

China last month invested almost $22 billion in debt-laden mining companies including Rio Tinto, OZ Minerals Ltd. and Fortescue Metals Group Ltd. to take advantage of a rout in commodity prices to secure supplies of resources. Buyers may focus on base metals assets, zinc, lead, nickel, as the market is “neglecting” these metals for investment, Elliott said.

The number of transactions this year may remain “quite healthy,” although the value of those deals would be “considerably lower,” Elliott said. “There will be continued buying from Chinese buyers. We are seeing quite a lot of Japanese activity as well and motivated by the same thing, long- term resource security concerns.”

Funds raised in initial share sales declined 42 percent to $12.4 billion with the total of initial public offerings dropping to 117 from 280 a year earlier, Ernst & Young said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net