China Leads in Global Mining's New-Look Financing Model

Source: Mineweb, Geoff Candy  (2/16/10)

"An Ernst & Young report on M&A shows Asia is sitting pretty"


In 2009, China spent $16.1bn on mining—about a quarter of all global deals during the year.

And, it is this emergence of China (along with other parts of Asia) that is likely to shape the manner in which mining companies find funding in the future, according to Ernst & Young's mining and metals sector transactions report, 2009: The Year of Survival and Revival.

The report states: "China's expanding appetite for mining and metals acquisitions is a relatively recent phenomenon. Over the past 10 years, Chinese entities have successfully completed over 369 deals worth over $50b, with nearly 80% of these taking place since 2008."

Part of the reason for this was the financial crisis, as E&Y explains, "The extreme price volatility, demands for much higher rates of return, difficulty in financing and caution over a 'double dip' recession prevented investment in new production by traditional investors. At this point in the cycle, Asian investors emerged as the new buyers, cash-rich and ready to take advantage of the opportunities that abounded as valuations dropped and struggling companies became the target of bargain hunters."

It adds that Chinese outbound M&A activity looks likely to continue to strengthen over 2010, driven by an unchanged appetite for deal-making, underpinned by the need to secure raw materials to satisfy the country's aggressive growth plans.

Ernst & Young says that given the current state of the global economy and the shocks of the financial crisis it is unlikely we will return to the same kind of rapid growth in the mining and metals sector seen in recent years.

"Much of the previous remarkable growth depended on financial leverage that is unlikely to be available at the same level for a very long time. . ."

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