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Right time for mining firms to spread wings

By Bi Xiaoning (China Daily)
Updated: 2009-04-07 07:56

The next 12-18 months will be the opportune time for Chinese mining and metals firms to pursue overseas acquisitions, as the market value of their overseas counterparts have dropped to attractive levels, global consultancy firm Ernst & Young said in a report.

Related readings:  M&A prices look right to many in their plans to go global  Chinese companies set for acquisitions despite past flops  Chinese firms will increase overseas M&A: RBS survey  Minmetals looks for mergers

Prices of mining products touched a six-year low in 2008 due to the global economic crisis. The market value of the world's mining and metals companies dropped about 40-60 percent, while the top 30 mining and metals companies in the world saw their market value drop to $808 billion from $2 trillion, according to the report.

"We anticipate Chinese companies with cash on hand to be active shoppers in this current environment, where there are once-in-a-lifetime acquisition opportunities, such as in low-risk markets like Australia and Canada," said Raymond Ng, partner, Ernst & Young.

Chinese companies have quickened their cross-border mergers and acquisitions since last year.

According to the Ernst & Young report, cross-border deals led by Chinese miners and metals producers grew an unprecedented 1,659 percent year-on-year in 2008 in terms of value. The total value of deals involving Chinese companies both at home and overseas increased 914 percent to $23.8 billion in 2008, while the number of deals increased 62 percent.

Ernst & Young also predicted that the mining and metals sector could expect a new rally with a rundown in inventories and infrastructure-intensive stimulus packages around the world. Mega M&A deals will slow this year, while niche deals will increase, the consultancy firm said.

Globally, more than $3 trillion in economic stimulus packages have been announced and about 30-40 percent of this will be going into infrastructure. In China, more than 70 percent of the stimulus package is set to be in metals-intensive infrastructure spending, the report said.