TORONTO The value of mergers and acquisitions in the global mining industry surged last year as the race for resources accelerated, according to a report that ranked Canadian companies at the top of the M&A list.
Deal valuations will rise at an even faster pace in 2011 as equity in mining companies appreciates alongside rising prices for metals, according to an annual report, released on Thursday by PricewaterhouseCoopers.
The firm, which advises companies on M&A, tracked 2,693 global mining deals in 2010 worth a total of $113 billion.
The figures represent a 77 percent jump in dollar terms and a 28 percent rise in deal volume over the year earlier. The numbers are still well off peaks reached in 2006 and 2007, when there was a flurry of large mining deals involving Canadian companies.
"We are definitely going to see a strong pace in 2011 in terms of volume and we also believe we will see more mega deals," said John Nyholt, a specialist in assessing M&A transactions and a co-author of the PwC report.
"The reason we are going to see more mega-deals is because with the strong performance in the mining sector, fueled largely by strong commodity prices. You now have a lot more mining companies that have higher market caps," Nyholt told Reuters ahead of the Prospectors and Developers Association mining conference in Toronto.
The annual PDAC event draws more than 20,000 miners, explorers, bankers, government delegates and other players.
According to the PwC report, at the end of 2010 the value of mining equity on the Toronto Stock Exchange, run by TMX Group (X.TO), was $396 billion, up from $254 billion at the 2007 market peak.
"Canada has always been a top destination for mining deals, but this year, Canada also topped buy-side activity -- both within Canada and abroad," PwC said in the report.
The report, entitled "China's role in global mining M&A overstated -- Canadian buyers top world," says the Asian giant is increasingly aggressive in resource takeovers, but is still far from becoming a leader in mergers and acquisitions.
"The reality is China has been a very attractive investor in global mining projects in recent years, but its current market share pales in comparison to Canada and other developed countries," Nyholt said in the report.
The report also predicted Chinese M&A activity would increase this year, potentially leading to the creation of one or more Chinese-owned diversified mining powerhouses.
It forecasts an increase in Indian-led deals, mostly in the form of private placements and offtake agreements motivated by a need to secure iron ore and coal supplies.
Nyholt said $27 billion in mining deals has already been announced this year, adding that momentum will keep building and likely feature some high profile takeover battles.
Toronto-listed Lundin Mining (LUN.TO) is in the middle of a tug of war between Canada's Inmet IMN.TO and Australia's Equinox Minerals EQN.AX. Inmet is proposing to combine forces with Ludin to form a $9 billion copper producer, while the Equinox wants to buy Lundin for C$4.8 billion ($5 billion) to expand production in Africa.
While a meteoric rise in metal prices has driven deal-making since the global financial crisis abated, the same trend could stop some deals from getting done by making them too expensive.
"Anticipated upward pressure on deal volumes, in turn, may prompt more seniors to invest in organic growth," the group said.
Growing criticism from governments could also hinder some deals, the report said, pointing to the government of Canada's rejection of BHP Billiton's (BHP.AX) $39 billion takeover bid for Potash Corp (POT.TO) as a cautionary tale.
"In 2011, we believe it will be more important than ever that mining companies proactively work with their stakeholders to avoid similar deal disruptions," it said.
(Reporting by Pav Jordan; Editing by Frank McGurty)