Source: Financial Post - Crosbie

In the Gold Sector, eleven deals were completed in the first quarter of 2008 compared to only five deals during the same period last year. The two most notable transactions completed in the first quarter were Barrick Gold’s all cash $1.7 billion bid for Rio Tinto’s stake in the Cortez joint-venture in Nevada, US, and a three way merger between Metallica Resources Inc., New Gold Inc. and Peak Gold Ltd. valued at about $1.4 billion.

The Metals and Mining Sector had a total of 40 deals done in the first quarter of 2008, compared to a substantially higher 70 deals in the same period in 2007.

In terms of M&A multiples, companies paid an average of $28 per ounce of gold for exploration assets, and $94 per ounce of gold for producing assets, showing a substantial premium paid for producing assets.

In the base metals sector, a number of mega M&A deals are worth noting. In October 2006, Vale (formerly CVRD) acquired Inco Ltd. for $17 billion. Vale is headquartered in Brazil, and is one of the world’s largest metals and mining companies. It is the world leader in iron ore production and, since taking over Inco, the world leader in nickel production as well.

In early November 2006, Xstrata plc completed its acquisition of Falconbridge Limited in a transaction valued at $19.6 billion.  Xstrata, headquartered in Zug, Switzerland, maintains a significant position in seven major international commodity markets including copper, coking coal, thermal coal, ferrochrome, nickel, vanadium, and zinc.  The company also runs a smaller but profitable aluminium business and recycling facilities, and has additional exposures to gold, lead, silver and a suite of global technologies, many of which are industry leaders.

In August 2006, the acquisition of Glamis Gold Ltd. by Goldcorp Inc. was one of the largest deals in the gold sector, with a transaction value of $9.5 billion.

In June 2007, Yamana Gold Inc.’s bid to take over Northern Orion Resources Inc. and Meridian Gold Inc. was accepted by Northern Orion, but rejected by Meridian Gold. Yamana Gold ended up making 3 more unsuccessful bids until Meridian finally accepted Yamana Gold’s fourth offer at a share price premium of 25% (based on the 20 day weighted average prior to the initial announcement). This represented a 13% increase from the initial offer and a total transaction value of $3.7 billion.

In June 2007, Russia’s MMC Norilsk Nickel succeeded in acquiring Lion Ore Mining International Ltd. for $6.8 billion after outbidding Xstrata Plc for this Canadian nickel producer.

In July 2007, Rio Tinto Plc completed a US $38.1 billion friendly take-over of Alcan Inc., the second largest acquisition in Canadian history. This deal made Rio Tinto the largest aluminium company in the world, hoping to capitalize on China’s expected increasing demand for aluminium.

Consolidation in the mining sector continued in full swing in the last quarter of 2007, when BHP Billiton Ltd. proposed to take over Rio Tinto Plc in one of the largest take-over bids of all time. After failing to persuade Rio Tinto's board to agree to a friendly merger, BHP announced a formal hostile take-over bid for $147 billion in February 2008.  The offer was immediately rejected by Rio Tinto, who stated that the offer did not reflect the true value of the company. 

In late January 2008, China's state-owned aluminium giant, Chinalco, and its partner, Alcoa Inc., built a surprise 9 percent stake in Rio Tinto for approximately US $14 billion. The companies are already seeking approval in Australia to raise their holding to 19.9 percent, and have begun analyzing BHP’s recent bid. Chinalco and Alcoa have reserved the right to counterbid for Rio Tinto although both state that they are in no rush to make a move.

In January 2008, Brazil’s Vale confirmed that it had held take-over talks with Xstrata Plc, valuing Xstrata at about $90 billion. However even though Xstrata’s CEO stated that he would not be averse to a takeover of the company, Vale’s CFO declared in April 2008 that negotiations were “dead”.

In April 2008, Teck Cominco Ltd. made a friendly $415 million bid for the Relincho copper-molybdenum deposit in Chile from Global Copper Corp. This valued Global’s copper reserve and resource at 4.31 cents per pound of copper in the ground (including credits for Molybdenum). The deal would boost Teck Cominco’s measured and indicated copper resources by 25%. It will likely set off a wave of lower market cap takeovers as larger mining companies try to replace dwindling reserves while commodity prices are high.