Mining M&A to be Focus for 2012: Experts


Chinese mining companies will continue to increase both purchases and investment in the overseas resources market in 2012, even though costs and challenges in the industry are rising, said experts.

"China has continued to gain strong influence in the global mining sector against a background of increasing activity in the acquisition of overseas resources," said Jeremy South, global mining leader at Deloitte Touche Tohmatsu Ltd (DTT) on Thursday.

South said that Chinese mining companies were "a bit quiet" in terms of overseas mergers and acquisitions (M&A) in the first half of this year because of the soaring price of high-level resources. However, he added that now is a good time for M&A activity because of a slight rebound in the price of resources after huge declines in recent months.

He predicted that Australia and Canada will continue to be the main target markets for overseas investment, but said that Chinese mining companies will continue to invest in and explore more mines in other countries such as those on the African continent.

He added that possible resource and carbon taxes, proposed by the Australian government and likely to come into effect in July next year, will undoubtedly impose pressure on Chinese mining companies.

"Canada is expected to see an increase in investment from Chinese companies in the mining industry," said Glenn Ives, North American Mining Leader at Deloitte Canada. "In recent years, Canada has only rejected two M&A approaches, which came from the United States and Australia. The country warmly welcomes Chinese investors in the mining industry."

However, Deloitte's South said Chinese companies need to find the right partners because the mining industry is a highly risky business and most Chinese companies lack experience of overseas business management.

One recent example of an unsuccessful overseas mining deal is the suspension of an iron ore project by a subsidiary of Sinosteel Corp Ltd in Western Australia, because of problems with the local infrastructure.

Industry insiders said China has signed many M&A contracts with foreign companies, but not all of the deals will be completed because of alleged problems with the managements of the foreign targets.

The management risks are big for Chinese companies, said Andrew Zhu, a partner in tax and business advisory services at DTT.

He said Chinese companies should build better relationships with foreign companies to ensure cooperation in the exploration of resources.

Chinese companies may have to look further than they had anticipated to attract the necessary funds over the long term, according to the DTT report. They also need to build the relationships required to gain access to foreign markets, while gaining better insight into those regions, it said.

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