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Mining M&A expected to pick up pace this year
February, 12th 2010

Merger and acquisition activity in the mining sector is likely to pick up pace in 2010 as producers shift their focus from cutting costs to driving growth in a recovering global economy, according to a report released on Thursday.

In the fourth quarter of 2009, 32 takeovers involving mining companies were announced, up from 21 in the third quarter and 17 each in the first and second quarters, the PriceWaterhouseCoopers (PwC) report said.

Early last year, miners were scrambling to deal with plunging metals prices following the late 2008 financial crisis, said PwC, an advisory firm.

Total deal value in the fourth quarter reached $4.9 billion, up from $3.7 billion in the third quarter. Deal value in the second quarter was $63 billion, due to the announcement of a $58 billion iron ore joint venture between BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX).

The pace of deals should pick up in 2010, while the average size of deals -- which bottomed in the fourth quarter -- should also grow, albeit slowly, PwC said.

"We're beginning to see an uptick, which was expected, and we're getting back to levels that we saw pre-economic crisis," Robert McCutcheon, U.S. metals leader at PwC, said on a conference call.

Helping drive the rebound is a year-over-year gain in metals prices. Credit markets are also returning to normal after nearly freezing up more than a year ago.

The combination of the metals crash and tightening credit in 2008 forced larger miners to cut costs, put off development projects and trim back growth plans.

Many smaller miners found themselves teetering on the brink of insolvency, which led some to sell minority stakes in themselves or in key projects to larger buyers, including state-owned Chinese companies eager for access to metals.

The relatively high number of minority stakes sold contributed to the low average deal value in the third and fourth quarters.

Those types of deals will likely continue, but will be augmented by more deals of the type that drove M&A through early 2008, which involved larger partners and were driven by a desire to grow and take advantage of a rising price environment.

"The values are still pretty low," said McCutcheon.

"But the deal volumes is I think the story here because we are starting to see that uptick."

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