CHAPTER 5 MERGERS & ACQUISITIONS — MORE IMPORTANT THAN EXPLORATION?

• Jurisdiction: United States

International Resources Law and Projects
(Apr 1999)
CHAPTER 5
MERGERS & ACQUISITIONS — MORE IMPORTANT THAN EXPLORATION?
Magnus Ericsson
Raw Materials Group
Stockholm, Sweden

January 1999

1998 — A RECORD YEAR

Over 25 billion USD (25,000 MUSD) were spent on mergers & acquisitions (M&A) in the metals mining and refining industry world wide in 1998. This is the second consecutive year of strong growth in M&A activity in the mining sector. Up from 12 billion in 1996 to 19 billion in 1997. Preliminary figures from Raw Materials Group of Stockholm's "RMG Annual M&A Survey" show a slow down in the second half of 1998 but still a record breaking year 1998 (Table 1).

Table 1. Mergers & acquisitions in the mining industry 1995 — 1998

Year	Volume (billion USD)
1995	16.5
1996	12.4
1997	18.7
1998	25.9

Sources:

Who Owns Who in Mining 1998

Raw Materials Data

This increase in M&A activity becomes even more significant when compared to the decline in exploration expenditure expected for 1998. In 1998 exploration expenditure world wide are estimated to be in the order of magnitude of 4-5 billion USD falling by some 30-40 percent. Mergers and acquisitions have become the most favoured way of growth and expansion in the mining industry.

There is a number of major reasons for this continued frenzy:

• Low metal prices and the concomitant low share values make it relatively cheap to buy operating companies and mines.

• The economic downturn in the industry in general further necessitates a restructuring to restore profitability.

• The political and economic changes in South Africa are finally affecting also the structure of the domestic mining industry in its foundations.

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• Privatisations continue, albeit at a lower level than earlier.

• Exploration, the alternative to M&As was partly discredited in the Busang scam.

• The general, industry wide, globalisation trend.

The largest deals in 1998 include:

• Anglo American Corporation of South Africa, the largest mining group of the world, simplifying, reshuffling and streamlining its basic structure, by taking over its group partner Minorco and minorities' interests. These deals, albeit involving not only mining and smelting interests, are valued at over 4.1 billion USD, making it the only rival to the previously largest deal: RTZ merging with CRA in 1996 in a 4 billion USD transaction.

• Alcoa taking over its aluminium competitor Alumax for 3 800 MUSD in early...