Resource Security Drives Increase in Chinese Mining and Metals M&A
An increasing level of M&A activity by Chinese mining and metals companies is being fuelled by the need to secure raw materials supply, the ongoing push for domestic consolidation and companies seeking vertical integration.
Deal value for Q1 2012 is US$7.9 billion, nearly five times higher than the same quarter last year, with deal volume slightly up to 32 from 29.
The lift in Q1 activity continues the steady uptick in Chinese mining and metals M&A activity last year. Overall in 2011 Chinese mining M&A activity increased 14% by value year on year to US$14.9 billion, from 122 deals. Overall by value, China was the fifth most acquisitive country in 2011, down from fourth in 2010.
Ernst & Young’s China Mining & Metals Leader, Peter Markey, says the need to secure reliable raw materials remains the key driver for the increasing level of deals.
“In particular, increased competition for assets globally means that we are seeing more Chinese companies being prepared to take minority stakes in overseas mining assets,” says Markey.
Ongoing domestic consolidation in the sector and producers seeking vertical integration opportunities were also factors in the increased Q1 M&A.
Markey says companies that seize the opportunities and are imaginative in their deal-making will be most successful.
“Uncertainty and volatility are likely to continue through 2012 but despite this globally mining and metals companies are showing they have an appetite for growth and are unlikely to sit on the sidelines.”, says Eleanor Wu, Ernst & Young Transactions Advisory – COIN leader.
Eleanor says that in a volatile market, Chinese mining and metals companies, which traditionally value potential acquisitions with a view to the longer term, are well placed to succeed.”
“We also think that successful deals will increasingly feature commitments to fund infrastructure, off-take arrangements, use of technical know-how, and more downstream processing joint ventures.”