Merger and acquisition deals in the mining sector are expected to reach record levels this year as demand for resources by the developing world continues to grow, a report by global professional services firm PwC suggests.
In the report, released Monday, PwC said it expects competition for deals to be fierce in 2012 as mining companies compete for deals with steelmakers and other industrial players as well as financial investors such as sovereign wealth funds, pension funds and private equity.
“With over $105 billion in cash, pent-up demand for new projects, rising production costs and declining developed world reserves, miners will seek out targets to build scale and achieve cost efficiencies,” the report said.
“Activity will be underpinned by continued demand for base and precious metals by the world’s rapidly industrializing nations.”
Already this year, Anglo-Swiss mining group Xstrata PLC and commodities trading giant Glencore International PLC have announced a deal to merge and create the world’s fourth-largest natural resources group.
The combined company, to be called Glencore Xstrata, will have a combined market value of $90 billion.
“If approved, Glencore and Xstrata’s proposed $90-billion merger of equals will be the largest mining transaction in history, eclipsing the two most famous previously completed mega-deals in mining history: Rio Tinto/Alcan and Vale/Inco,” PwC said.
In 2011, PwC put the total value of merger and acquisition deals with disclosed values at $149 billion, up by a third from 2010, with the average deal coming it at $105 million, up from $70 million the previous year.
The biggest deal involving a Canadian company was Barrick Gold’s (TSX:ABX) acquisition of copper miner Equinox Minerals in a transaction valued at $7.3 billion.
Other deals involving Canadian firms included the sale of Consolidated Thompson Iron Mines Ltd. to Cliffs Natural Resources Inc. for $4.9 billion and the sale of Quadra FNX Mining Ltd. to Polish company KGHM Polska Miedz SA for $3.5 billion.