Deal drought for mining sector as prices plunge

 
Michael Bow
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MINING deals have sunk by a third this year after tumbling commodity prices weakened interest in capital raising and acquisitions, a report out today shows.

Mergers and takeovers in the global metals and mining sector – a key component of the FTSE 100 – fell 30 per cent between January and June, the third consecutive fall in deal volumes.

The drought, revealed in figures from professional services firm EY, is being blamed on volatile gold, coal and copper prices. Commodities currently rank as the worst performing asset class on a total return basis, having lost 6.8 per cent so far this year, according to Deutsche Bank research.

“A sign of sustained improvement in commodity prices may be needed to trigger an increase in competitive buying activity,” EY global mining and metals transactions leader Lee Downham said.

Despite 2013’s bull run in equity markets, just 12 initial public offerings were completed in the sector between January and June – down 69 per cent on the same period last year, the statistics show.

Outside of equity markets, capital raising was brighter for metal and mining outfits globally.

The average coupon on 10-year investment grade bonds in the sector fell to three per cent, down from 3.9 per cent a year earlier.

“We are hopeful that this is the bottom of the cycle for capital raising,” Downham added.

The dip in deal volumes masks a 41 per cent rise in their value, led by the $37.4bn mega-merger between trading house Glencore and metals miner Xstrata signed earlier this year.

But mega-mergers – those with a deal value worth over $1bn – drove the increase, representing 80 per cent of the $78.6bn worth of deals transacted in the period.