Companies dig for value in mining deals

With economic growth slowing and commodity prices sinking, Chinese resources companies are becoming more selective in outbound mergers and acquisitions, one expert says.

"If you think commodity prices will go up in the long term, this is the time to buy," says Jeremy South, a specialist in mining M&A at Deloitte Touche Tohmatsu Ltd.

During the past 18 months, falling commodity prices have pushed many small companies into "survival mode", according to a Deloitte report called Tracking the Trends 2015.

In 2007, global mining deals reached $103 billion, but in 2013 the figure was only $12 billion. In the first half of 2014, 117 transactions in the mining sector were announced, with the total value rising 56 percent year-on-year to $13.2 billion, Deloitte said.

"As the situation of junior companies becomes more dire, they may be forced to sell at any price at some point," it said. Given these conditions, Chinese companies will be more selective in the outbound M&A market, says South.

According to the report, Chinese investment has long fueled the resources sector, but it appears to be waning. "The failure of roughly 80 percent of China's overseas mining deals has seen the country pull back on resource investments in countries throughout Africa, South America and the Middle East," said the report.

"In the future, Chinese buyers will only be interested in assets that China needs, like copper and gold," says South. And unlike the many small deals of the past, Chinese companies will focus on big-ticket transactions, he says.

In April 2014, a Chinese consortium purchased a Peruvian copper mine from Glencore Xstrata for $5.85 billion. Globally, there are many sectors in the mining industry that have potential, including copper, zinc, lead, gold and coking coal, according to South.

(China Daily Africa Weekly 04/10/2015 page23)