Miners looking for takeovers

The Canadian Press

May 13, 2008 at 11:40 AM EDT

TORONTO — Nearly half of the large mining companies interviewed for a recent study by Ernst and Young said they need to make acquisitions to meet their aggressive growth targets and 90 per cent said they expected to make an acquisition in the next two years.

The study, published Tuesday, predicts that 2008 will be a critical year in defining which of the mining companies are the hunters and which are the hunted.

“The global mining sector is flush with cash right now, and there's a strong appetite for more transactions,” says Tom Whelan, Ernst and Young's Canadian mining leader.

“Companies in Canada and the U.S. are attractive targets because most companies in North America have a single metal focus. This makes them neat strategic acquisitions.”

The study found 40 per cent of respondents — which were selected from among the top 40 mining companies in the world — said they were only able to meet their aggressive growth targets through acquisition.

It said this year will be definitive because the credit crunch in the world's capital markets has created a new challenge for the smaller mining companies without abating the demand for additional natural resources or the availability of funding for projects.

“While the credit crunch is proving to be a challenge for the juniors, it's not having a huge impact on the overall rate of consolidation. If anything, the rate of consolidation could accelerate in the short- to medium-term,” Mr. Whelan says.

“The cost of debt has soared, but we aren't aware of any bankable transactions in the sector that haven't been completed because of debt availability issues.”

Even with the banks and investment banks in disarray because of the meltdown in the U.S. mortgage industry that hit last summer, Ernst & Young said it found nearly 60 per cent of 2007 loans to the mining sector were made in the second half of the year.