Dealtalk: Cashed-up miners could turn more hostile on deals

KALGOORLIE, Australia Wed Aug 3, 2011 7:41am EDT

Heavy vehicles operate at Macarthur Coal's Coppabella mine, about 760km (472 miles) northwest of Brisbane, in this undated handout photograph made available July 12, 2011. REUTERS/Macarthur Coal/Handout

Heavy vehicles operate at Macarthur Coal's Coppabella mine, about 760km (472 miles) northwest of Brisbane, in this undated handout photograph made available July 12, 2011.

Credit: Reuters/Macarthur Coal/Handout

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KALGOORLIE, Australia (Reuters) - Expect more hostile deals in resources as cashed-up miners turn desperate to snare targets, deal advisers say, following Peabody Energy (BTU.N) and ArcelorMittal's (ISPA.AS) change of tack this week on their $5.3 billion bid for Macarthur Coal MCC.AX.

The pace of resources deals has picked up in recent weeks, putting the sector on track to top a record $120 billion in transactions this year, Ernst & Young predicts.

Deals are being fueled by miners anxious to deploy the spoils from booming commodity markets, with some being forced to move into new sectors or regions, as the number of top tier assets available grows thin.

"There are fewer and fewer world class assets out there, so as people get more and more desperate, they may have no choice but to go hostile," Tim Day, head of UBS's Perth office, told Reuters.

Knowing that suitors are hungry, takeover targets with bullish expectations are holding out for strong offers, while weak equity markets have depressed their shares, making it harder for deals to be sealed.

To help close that valuation gap and get deals done, suitors may have to go hostile, like Peabody and top steel-maker ArcelorMittal in their chase for Australian coal miner Macarthur.

"With all the takeovers announced, pretty much all of them have been friendly. That could change," Paul Murphy, Asia Pacific mining and metals transactions leader at Ernst & Young, told reporters.

NEW HORIZONS

Top miners digging for acquisitions are pushing into new sectors or geographies, partly to avoid competition hurdles, as BHP Billiton (BHP.AX)(BLT.L) has done with a $17 billion spree for U.S. shale gas producers and Barrick Gold (ABX.TO) did with its $7.7 billion takeover of copper miner Equinox Minerals.

"What we're seeing now is they can't afford to hoard the cash. Some are almost being forced to do M&A," Murphy said.

Gold miners, riding record high gold prices, are looking for companies with resources outside Australia for takeover opportunities.

Australia is increasingly seen as over-explored and expensive to operate in. At the same time Africa is more and more seen as too risky, following unrest in countries like Burkina Faso and Ivory Coast, UBS's Day said.

"South America is emerging as the new gold jurisdiction people are getting excited about," he said.

Miners with gold resources in South America include Troy Resources (TRY.AX) and Mundo Minerals MUN.AX.

Barrick Gold's Asia-Pacific regional president Gary Halverson agreed that targets in Australia were "turning pricey."

"We continue to look at other acquisitions and opportunities but we don't feel compelled to jump into anything," Halverson said at the annual Diggers & Dealers conference, attended by more than 2,000 mining and exploration firms, stock brokers, bankers, investors, financiers and mining service industries.

Day said Australia may still be attractive for Chinese gold investors, like Zijin Mining (2899.HK), China's top gold producer, which has bought just under 17 percent of Norton Gold Fields (NGF.AX), potentially as a beachhead for further offshore expansion.

"Australia makes a lot of sense for Chinese investors from a time-zone perspective and offshore investment in gold assets aligns with their strategic diversification away from U.S. dollars," he said.

He predicted there would be more cross-border deals in the gold sector, in contrast to the past year, dominated by deals done within Australia and Canada, like Kinross Gold's (K.N) $7 billion takeover of Red Back Mining.

(Editing by Ed Davies and Frederik Richter)

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