The number of deals being announced in the global metals industry is significantly lagging last year’s levels, but the value of deals is sharply higher, a new PricewaterhouseCoopers report finds.

The report shows that during the first half of 2009, there were 34 deals announced worth US$50 million or more, compared with 139 deals for all of 2008. Based on current deal volume, 2009 is on pace to fall short of 2008 numbers by 50%. But total deal value is on track to be 85% higher than 2008 levels, according to PwC.

However, the report notes that the primary contributor to this level of value was the announcement of one large deal, a US$58-billion 50-50 iron ore joint venture between BHP Billiton and Rio Tinto.

The potential for incremental large deal activity during the balance of 2009 remains limited, according to PwC. But it notes that the debt market has become more accommodating for investment-grade and high-yield corporate issuers compared with the first half of 2008.

“We expect that new announcements will continue to be strategic in nature, including deals that enable the acquirer to vertically integrate or gain exposure to attractive mining assets,” said Jim Forbes, global metals leader at PwC. “These drivers should provide something of a bright spot in what has been an otherwise sluggish environment for metals deals.”

Strategic investors continue to dominate the deal landscape for metals targets, accounting for almost 99% of deal value announced during the first half of 2009. This is an increase from 2008, when strategic investors accounted for 75% of deals. PwC expects strategic investors to continue to account for a large majority of announced deal value because of restraints on credit and the rationale for building scale and consolidation within the sector.

Minority stake purchases continue to remain a significant contributor to overall M&A activity in the metals sector, PwC notes. These transactions have accounted for half of deals announced so far in 2009, representing a pronounced increase from the relative levels of both 2007 and 2008.

This trend is symptomatic of a greater sense of risk aversion, as well as less financial wherewithal, among potential acquirers within the sector. These factors are likely to continue to lead to a higher relative percentage of minority stake investments through the balance of 2009, according to PwC.

The Asia Oceania region dominated activity during the first half of 2009, comprising 71% of total deal volume and 94% of value as M&A targets, and 85% of total deal volume and 95% of value as acquirers. In particular, entities from Australia and China have contributed significantly to deal totals for the year.

Cross-border deals are on the decline as local-market deals take precedence, the report finds. In the first half of 2009, total local-market deals comprised 62% of deals (for deals worth US$50 million or more), compared with 38% being cross-border deals.

The report also points out that iron ore targets contributed significantly to the overall deal value announced in the first half of 2009, confirming expectations of rising interest in targets outside the aluminum segment.

“The general environment for M&A transactions remains muted, though we continue to hold the expectation that deal activity will be more significant outside the aluminum segment during the balance of the year given the relatively consolidated state of the aluminum space,” the report says.