Editor's Note The crisis that nearly brought the global financial markets to collapse has passed, yet the new economic landscape still faces numerous uncertainties. According to research materials compiled by experts from the editorial team of “Geological Survey Dynamics,” published by the Development Research Center of the China Geological Survey, the outlook for global mining mergers and acquisitions is highly optimistic. However, in terms of mining development, significant challenges remain, and there is a pressing need to adapt actively to the new realities of the global economy.
PwC recently reported that in 2009, the global mining industry witnessed low-price transactions not seen for many years. However, the firm also noted that although 2009 was a challenging year, confidence is returning to the mining sector. The worst of the financial crisis appears to have passed, and cautious optimism has become the dominant sentiment. As a result, global mining M&A activity in 2010 should align with rising commodity prices, increased credit availability, and growing investor confidence.
     Last year: The number of M&A deals increased, while the deal value declined.
In reviewing M&A activities in the mining industry over the past year, PwC noted that the number of mining M&A deals surged to 1,937 in 2009. However, due to the impact of the financial crisis, the drivers behind these M&A activities also shifted. Compared to 2008, the average deal value in 2009 more than halved—from US$124 million in 2008 to US$52 million in 2009. Lower asset prices and the absence of M&A deals valued at over US$1 billion were the direct causes of this trend.
In its annual M&A survey report, PwC stated that the total value of global mining M&A deals in 2008 was US$153.4 billion, dropping to US$77.1 billion in 2009. At the same time, the report noted that the impetus behind deal activity has shifted—from being driven by growth needs to being motivated by companies’ need to survive and balance their financial statements.
In 2009, the number of mining M&A deals exceeding $1 billion fell to its lowest level in four years. At the same time, the size of M&A deals also declined significantly, with the value of each deal falling below $3 billion.
The primary reason for the decline in the total value of global mining M&A deals in 2009 was the relatively low level of activity among industry giants in the M&A arena. Notably, the largest deal of 2009 didn't even make it into the top ten deals of 2008.
Moreover, a variety of relevant factors—including geographic location, national interests, and a diversified shareholder base—have increased the difficulty of executing mining M&A transactions. The time, cost, and effort required to complete such transactions have become key drivers behind their successful execution. Based on experience over the past two years, the primary drivers of a mining M&A deal can differ significantly between the initial stage of agreement and the final completion phase.
In 2009, there were 1,859 small M&A deals valued at less than $250 million—more than in any of the three preceding years. The reason for this trend is that “M&A and transactions involving small companies are driven by survival needs rather than opportunistic motives or ambitions for strategic growth.”
Meanwhile, in 2009, there were a total of 66 mid-sized M&A deals ranging from $250 million to $1 billion—unchanged from the levels seen in 2007 and 2008. M&A activity involving coal and uranium mines remained robust in 2009. Of the top ten M&A deals in 2009, four were related to coal resources. Moreover, the share of coal-related deals in the overall value of M&A transactions rose from 16% in 2008 to 27% in 2009—largely driven by China’s demand and the strong interest shown by countries such as India.
Another less obvious trend is the growing contribution of precious metals to the value of merger and acquisition deals. As a safe-haven investment, gold has not experienced the same sharp decline in value as base metals and commodities.
     This year: Mining M&A will become a driving force for the development of the mining industry.
Mergers and acquisitions have always been an integral part of the vast world of the mining industry. Those with both the operational capability and the desire to expand their resource territories consistently find themselves in a favorable position in M&A activities.
PwC believes that “buyers who acquired assets earlier in 2009 may have already successfully caught the bottom.”
What was the actual state of the mining industry in 2010? Clues had already begun to emerge in 2009. According to PwC, although 2009 was a challenging year, confidence was starting to return to the mining sector. Emerging economies were urgently seeking access to strategic minerals, and commodity prices reflected this demand. The worst of the global financial crisis seemed to have passed, and cautious optimism was making a comeback. PwC believes that cautious optimism appears to be the dominant sentiment, and merger and acquisition activity should align with rising commodity prices, credit availability, and investor confidence.

The primary drivers behind merger and acquisition activities—namely, short-term debt repayment and refinancing issues—have largely disappeared. PwC hopes that M&A activity can once again become a driving force for the development of the mining industry and make a fresh comeback onto the mining stage.