Deals heat up in metals sector in Canada to pace not seen since before recession

OTTAWA – The pace of mergers and acquisitions in the Canadian metals sector last quarter reached a level not seen since before the recession, according to a new report by consulting firm PwC.

But Jim Forbes, PwC’s national and global metals leaders, said Thursday that companies are being smarter this time around and are not overpaying for assets that won’t bring the necessary returns.

Forbes pointed to a decision by Chinese-owned Minmetals Resources to walk away from its $6.3-billion hostile bid for Equinox Minerals Ltd. (TSX:EQN) in the face of a rival offer for the Canadian company from Barrick Gold (TSX:ABX) as an example.

“Perhaps in the past it would have been run up in a bid,” Forbes said of the deal.

Companies may be flush with cash from high metal prices and have easy access to credit once again, but Forbes said they are being more conservative.

“We have seen some examples where people have taken the sound financials and said ‘hey this deal makes economic sense at this price’ and not necessarily gone past that price,” he said.

Get weekly money news

Get expert insights, Q&A on markets, housing, inflation, and personal finance information delivered to you every Saturday.

Sign up for weekly money newsletter Get Started

By providing your email address, you have read and agree to Global News' Terms and Conditions and Privacy Policy.

“I think there is more pressure from stakeholders certainly that if you do a big acquisition, the outcome has got to be additive.”

Lundin Mining (TSX:LUN) recently announced that it would go it alone after a strategic review failed to turn up an acceptable bid for the miner.

In doing so, Lundin also ruled out trying to revive a deal to merge with Inmet Mining (TSX:IMN) that it abandoned in March.

During the mania before the financial meltdown, Rio Tinto paid $38 billion for Alcan Inc. in 2007 in a deal that has weighed on the company ever since.

Teck Resources also paid $14 billion in 2008 for Fording Canadian Coal Trust in a transaction that took the Vancouver-based base metals company to the financial brink.

“The recession put a lot concerns on the table and really amplified financial decisions that were made in the past. And some were very good and some weren’t as good and I think as people come out of that, they’re learning from that,” Forbes said.

There were 39 deals in the metals sector in Canada announced in the first quarter, with iron ore leading the way.

The biggest was the US$4.1-billion offer for Consolidated Thompson Iron Mines by Cliffs Natural Resources. Other big deals included Wuhan Iron and Steel’s deal for a 27 per cent stake in Adriana Resources and a 25 per cent stake in Century Iron Ore Holdings.

In the second quarter so far, PwC said the Barrick-Equinox deal is the biggest, but there have also been four more deals valued at more than $100 million.

Globally there were four deals in the metals markets worth more than $1 billion in the first quarter of 2011.

Out of the 228 global transactions last quarter, 26 were valued at US$50 million or more while the total value of the deals equalled US$12.9 billion, up from US$6.3 million a year ago.

Note to readers: This is a corrected story. A previous version had an erroneous headline.