Merger & Acquisition Activity in the Mining Sector Through to September 2007, the Canadian M&A market continued to grow albeit at a slower pace than in the same period last year as shown below.
First 9 months 2007 2006 Gold Number of Deals 22 35 Dollar Value ($ millions) $7,803 $14, 172
Metals and Mining Number of Deals 200 166 Dollar Value ($ millions) $68,356 $48,734
Source: Financial Post - Crosbie
In the Gold sector, 22 merger and acquisition deals were completed as of September 30, 2007 compared to the 35 deals completed for the same period in 2006. In dollar value, this represented almost a 50% drop compared to the same period in 2006.
In contrast, the Metals and Mining sector was very active in the first nine months of 2007 with 200 transactions valued at US $68.4 billion, compared to 166 transactions valued at US $48.7 billion in the first three months of 2006, an increase in dollar value of 40%.
In terms of M&A multiples, the following table tracks IBK Capital’s statistics on a selected number of M&A transactions completed by gold mining companies since 2003.
First 9 months 2007 FY 2006 FY 2005 FY 2004 FY 2003 # of Publicly announced deals 25 51 33 34 44 Estimated Price Paid per Ounce of Gold Resource
- Producing Assets $115 - Exploration Assets $24
A number of mega M&A deals are worth noting. In October 2006, CVRD (now called Vale) acquired Inco Ltd. for $17 billion. Vale is headquartered in Brazil and is one of the world’s largest metals and mining companies. It is the world leader in iron ore production and since taking over Inco, the world leader in nickel production as well.
In early November 2006, Xstrata plc completed its acquisition of Falconbridge Limited in a transaction valued at $19.6 billion. Xstrata, headquartered in Zug, Switzerland, maintains a significant position in seven major international commodity markets: copper, coking coal, thermal coal, ferrochrome, nickel, vanadium, zinc, a smaller but profitable aluminium business, recycling facilities, and additional exposures to gold, lead and silver and a suite of global technologies, many of which are industry leaders.
In August 2006, the acquisition of Glamis Gold Ltd. by Goldcorp Inc. was one of the largest deals in the gold sector, with a transaction value of $9.5 billion.
In June 2007, Yamana Gold Inc. made a bid to takeover Northern Orion Resources Inc. and Meridian Gold Inc. which was accepted by Northern Orion but rejected by Meridian Gold. Yamana Gold ended up making 3 more unsuccessful bids until Meridian finally accepted Yamana Gold’s fourth offer at a share price premium of 25% (based on the 20 day weighted average prior to the initial announcement). This represented a 13% increase from the initial offer and a total transaction value of $3.7 billion.
In June 2007, Russia’s MMC Norilsk Nickel succeeded in acquiring Lion Ore Mining International Ltd. for $6.8 billion after outbidding Xstrata Plc for this Canadian nickel producer.
In July 2007, Rio Tinto Plc made a US $38.1 billion friendly take-over of Alcan Inc., the second largest takeover in Canadian history. This acquisition made Rio Tinto the largest aluminium company in the world, hoping to capitalize on China’s expected increasing demand for aluminium.
Consolidation in the mining sector continues in full swing in the last quarter of 2007. BHP Billiton Ltd. proposed to take over Rio Tinto Plc in one of the largest takeover bids of all time (US $140 billion). There is also speculation that Xstrata Plc could be subject to a take over bid from either Vale or Anglo American Plc.
After a series of big deals in 2006 and 2007, the mining sector is now dominated by a handful of large publicly traded companies. In terms of market capitalization, the seven largest companies are:
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