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Canada topped the global mining and metals sector as the number one target destination by total deal value in the first three months of this year, says international firm Ernst & Young.
“Canada is fast becoming a go-to destination for mining and metals transactions as companies around the world look for a secure and stable environment amid ongoing market and political volatility,” says Richard Crosson, Partner in Ernst & Young’s Transaction Advisory Services practice in a statement.
“We’ve seen a number of deals, many being small domestic transactions targeting junior explorers and exploration properties,” he adds.
While continued uncertainty saw global mining and metals deal volume and value decrease by 34% and 20% respectively year over year, a strong pipeline indicates mining companies are showing an appetite to do deals. In fact, mining and metals companies completed 10 megadeals — deals over US$1 billion — in Q1 2012, twice as many as in the same period in 2011.
“The global market is active at both ends of the transaction scale, with a greater number of megadeals in Q1 2012 compared to Q1 2011 but with a lower average deal size,” says Crosson. “These deals are being driven by the scarcity of large, quality assets and fierce competition for them.” The large number of smaller deals — the average deal size for the quarter being US$130 million, down from US$134 million in Q1 2011 — reflects an increasing interest in exploration projects.
“The need to secure raw materials, increase penetration in growth markets, achieve greater vertical integration and consolidate market share will continue to drive M&A this year,” says Crosson. “Canadian mining and metals companies, unwilling to postpone their growth agenda, are prepared to act opportunistically and strategically.”
Early in May, Ernst & Young said 2012 was emerging as a year of extremes, with a greater number of megadeals in the first quarter compared to the same period of 2011, but with a poorer average deal size due to the smaller dimension of the majority of transactions.
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