Mining deals double in value but fall in number

The global rush to secure precious natural resources continued over the past six months, with new figures showing the value of mining deals doubled compared with last year.

Accountancy firm Ernst & Young said the total value of deals rose to more than US$96 billion ($111 billion) between January and June, up from around US$48 billion in the same period last year.

The jump reflects a spate of big-ticket deals in the first half of this year, the biggest of which was Barrick Gold's US$7.6 billion acquisition of Australia's Equinox Minerals in April, according to the data provider Dealogic.

Other major transactions included Arch Coal's US$3.4 billion deal to buy International Coal and Newmont Mining's US$2.3 billion acquisition of Fronteer Gold.

But uncertainty around the prospects for the world economy and the spread of resource nationalism - something that stymied BHP Billiton's US$38.6 billion gambit to buy Canada's Potash Corp last year - meant that, while the overall value rose, the number of deals actually fell over the first half of the year.

In all, there were 511 deals in the period, down from more than 570 last year, "reinforcing the view that while larger deals are being executed, there is still a level of uncertainty" when it comes to embarking on mergers and activity, the firm said.

The frequency could pick up as the year progresses, according to Ernst & Young partner Lee Downham.

"Average mining company debt is at an all-time low while cash flow and profitability is at an all-time high.

"With capital increasingly available to the sector, mining and metals companies are in a very good position to do deals," he said. That said, various factors were still weighing on the deal-making frenzy.

"Ongoing eurozone credit issues, stagnating growth in America, uncertainty around the pace of China's growth, combined with uncertainty around the spread of resource nationalism, is making management wary and it is holding some deals back," he added.

Alongside the rise in the value of transactions, the first half of the year also saw an uptick in mining listings.

The number of mining and metals initial public offerings (IPOs) was up 30 per cent, climbing to 73 between January and June, against 56 in the same period last year.

Glencore's blockbuster US$10 billion market debut pushed up the overall value of proceeds from new listings, which rose to US$13 billion from US$6.3 billion.

The Swiss commodities trader began life as a public company in May, with a dual London and Hong Kong listing.

Eyeing what is a very strong pipeline, Downham is hopeful of seeing more market debuts in the coming months.

He said: "We expect to see a significant number of mining and metals IPOs during the second half of 2011 and beyond."

- INDEPENDENT