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Record streak for mining takeovers extends into 2012

Glencore International PLC’s $41-billion (U.S.) offer last month to buy out Xstrata PLC has catapulted the value of global mining transactions announced this year to almost a quarter of last year’s $184-billion.

Urs Flueeler/AP/Urs Flueeler/AP

The global mining industry's appetite for deal-making has returned after a record year for mergers gave way to a relatively quiet few months.

Glencore International PLC's $41-billion (U.S.) offer last month to buy out Xstrata PLC has catapulted the value of transactions announced this year to almost a quarter of last year's $184-billion. While such giant deals are rare, they can trigger moves by competitors.

Mergers and acquisitions will be a major focus as mining companies descend on Toronto this week for the Prospectors and Developers Association of Canada annual conference – a key event for the industry as it faces severe headwinds. Metals producers are desperate to combat rising costs so they can capitalize on the soaring prices of gold, silver and copper.

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"What we've seen in the last month is a very distinct pickup in activity," said Andre Hidi, head of mergers and acquisitions at BMO Nesbitt Burns. While Canadian transactions tend to concentrate among small to mid-sized companies, "even the large companies are always looking to upgrade their portfolios," he said.

Several potential bidders are interested in operations of Ivanhoe Mines Ltd. , the Vancouver-based producer of copper, gold and coal said in a statement last week. Kinross Gold Corp. and Goldcorp Inc. , Canada's No. 2 and No. 3 gold producers, said they are keeping an eye out for potential deals.

"There will always be a level of M&A," Charles Jeannes, Goldcorp president and chief executive officer, told the annual BMO Metals & Mining Conference in Hollywood, Fla. "We've been very active over the years in acquiring individual projects, because we're mining non-renewable resources. We will always keep our eye out for good opportunities."

Getting the timing or price wrong for a major purchase can be ruinous for acquirers and investors. Vancouver-based Teck Resources Ltd. lost 90 per cent of its market value in late 2008 after offering to buy a coal producer for more than $12-billion just before credit markets froze in the global financial crisis and coal prices plunged. Kinross sank 21 per cent on Jan. 17 after saying it will write down the value of a $7.1-billion acquisition from 2010.

But Teck, whose shares have more than rebounded from their 2008 slump, is looking to expand beyond its main copper, coal and zinc operations – at the right price.

"We've been very public that iron ore would be a good fit for our portfolio," Donald Lindsay, Teck's president and chief executive officer, said at the BMO conference. "The people in the industry are enjoying the best times they've had in their lives and nobody wants to sell for a reasonable price, so it's been pretty difficult."

The priciest transaction of 2011 involving a Canadian mining company was the $7.3-billion offer by Barrick Gold Corp. , the world's biggest producer of gold, for Australia's Equinox Minerals Ltd. That pushed the value of the country's mining deals to $37.7-billion. Canadian mining companies have announced 90 transactions with a combined value of $4.5-billion in the first 90 days of the year. That puts 2012 on track to be Canada's ninth consecutive year of averaging at least one mining transaction per day.

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"You always have a pipeline of deals," Eugene McBurney, chairman of GMP Securities LP, said in an interview. The Toronto-based investment bank ranked third last year in advising on Canadian mining deals.

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About the Author
Investment Reporter

Nicolas Johnson has covered global finance, markets and investing since 1998. He joined The Globe and Mail in 2011. He has worked as a reporter and editor with Bloomberg News in Paris and Tokyo, and also worked briefly in emerging-market debt at Société Générale. More

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