MAC: Mines and Communities

Could spate of mine takeovers signal a bright new mining year?

Published by MAC on 2010-01-19
Source: Reuters (2010-01-11)

Reuters has published an informative (though not complete) list of likely and potential mergers and acquisitions in the mining industry during the coming months.

However, a year is a long time in the world of finance.

It might be prudent for companies not to count their nuggets before they're snatched.

Spate of mine takeovers could be the start of a deal heavy 2010

Cameron French, Reuters

11 January 2010

TORONTO- A spate of hotly contested takeover deals in Canada's mining patch and steadily rising metal prices may drive busy dealmaking in 2010 after a lull in acquisitions last year, experts say.

And new sources of financing are opening up as banks slowly return to the lending game and commodity-hungry China opens its coffers to partners, providing plenty of incentive for larger players to feed on smaller developers.

"Most of the (miners') financial positions are much stronger than they were a year ago and everybody seems to be refocusing their attention on growth," said Haytham Hodaly, analyst at Salman Partners.

Goldcorp (G.TO), which has been growing aggressively in recent years, is currently wrapping up two acquisition bids on foreign soil.

In Chile, the company said last week it would spend $513 million to acquire Xstrata's (XTA.L) 70 percent stake in the El Morro copper-gold project, trumping an existing bid from rival Barrick Gold (ABX.TO), the world's largest gold company.

Goldcorp also just finished fighting off Penmont, a joint venture of gold and silver heavyweights Fresnillo (FRES.L) and Newmont (NEM.N), to clinch the takeover of Canplats Resources (CPQ.V), which is focused on the Mexican mining space.

That followed Cliffs Natural Resources' (CLF.N) victory over Noront Resources (NOT.V) in a battle for Canadian chromite explorer Freewest Resources (FWR.V), and comes as royalty companies Royal Gold (RGLD.O) and Franco Nevada (FNV.TO) both bid for smaller rival International Royalty (IRC.TO), with Royal winning agreement on a C$640 million offer.

The return of hostile bidding, which was a feature of the red-hot 2006-2008 M&A boom, suggests companies are again prepared to be aggressive to lock down new assets.

The recent activity follows a year of cautious rebound from the 2008 crash in metal prices. Industry players say that now, with gold having held above $1,000 since October and base metals still churning higher, potential buyers may have hit a point of comfort with the economics of adding assets.

"If the gold price and other metal prices remain strong ... then we would expect to see more (deals)," said Paul Burchell, an analyst at Dundee Securities.

In addition to Goldcorp, which wants to use El Morro as an entry into the red-hot Chilean mining space, other large-tier miners are seen as prime candidates to bulk up through M&A.

Uranium giant Cameco (CCO.TO), which said last year that it could consider a deal valued in the $1 billion to $2 billion range, may now be ready to make such a move after selling its Centerra Gold (CG.TO) subsidiary for about C$872 million in December.

Teck Resources (TCKb.TO), Canada's top base metals miner, said last fall it was "open for business" and thinking of acquisitions after a tough year fixing its balance sheet in the wake of its 2008 leveraged takeover of Fording Coal Trust.

Chinese Stakes

Teck's rebuilding effort included selling a 17% equity stake to state-owned China Investment Corp for $1.5 billion, reflecting a growing trend among Canadian companies of turning to Asia as a source of capital.

Such deals, typically sales of minority equity stakes and often including a long-term supply deal, are expected to increase in frequency and in the size of companies involved.

"I think China is still looking to secure resources, and they certainly have a lot of foreign exchange reserves they want to deploy and one way to do that is to buy a copper mine," said David Whetham, a resource fund manager at Scotia Capital.

Other players seen in possible deals include HudBay Minerals (HBM.TO), which has been rumored to be shopping a stake in its Fenix nickel project in Guatemala.

"There's a lot of discussions ongoing right now with bigger companies," said Glenn Ives, North American mining leader at accounting firm Deloitte.

Target companies can use the deal to leverage closer ties to a region expected to drive global growth in coming years.

Along those lines, Teck has also been in talks with Asian coal customers regarding taking on a partner for its coal business.

Teck Chief Executive Don Lindsay has said it would only pursue such a deal if it would lead to enhanced "business relationships".

The source of capital, meanwhile, should fund projects where equity or debt financing may not be an attractive option.

Asian capital "will probably mean that there will be more projects developed (in Canada), which actually will be hugely beneficial to the economy," said Deloitte's Ives.

($1=$1.03 Canadian) (Additional reporting by Pav Jordan; editing by Rob Wilson)

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