Feb18, 2011
By Londiwe Buthelezi
Uncertainty about the regulatory framework and the outcome of the nationalisation debate is set to hinder mergers and acquisitions (M&As) in the local mining sector this year, compounding the outlook for the industry.
Investment analysts say the country is unlikely to see any jockeying by investors to plough money into deal making until there is clarity on key policy issues and power supply concerns are tackled.
Major mining companies, on the other hand, are increasingly considering disposals of non-strategic assets. That push partly reflects a bid by some companies to pare back some of the exposure to the risks now associated with the industry.
BHP Billiton Energy Coal South Africa is putting up some of its undeveloped coal assets for sale, and has invited tenders from parties interested in the assets.
Anglo American announced earlier this month that it had completed the sale of its Black Mountain Mining zinc interests in South Africa to Vedanta Resources for cash proceeds of $346 million (R2.5 billion).
Toby Mannock, the head of investment banking at Renaissance Capital, said asset disposals would be commonplace in 2011, if the investment climate was perceived to be increasingly risky, particularly to capital-intense, long-term projects.
He said international mining companies would undertake an extensive risk analysis when deciding to either acquire assets or dispose of interests in any geography.
“However, in South Africa, considerations will likely include technical mining risks like deep level mining, the rand’s volatility, local cost inflation and the political climate (for example, the nationalisation debate).”
Analysts say the country could lose out as investors are swayed by the emergence of new mineral wealth in the western parts of Africa.
Investment analysts say that, with other African countries increasingly revealing commodities in high demand, attention is gradually being diverted away from South Africa, which used to be the magnetic pole for investment in the continent’s mining sector.
South Africa has not seen a major deal in its mining sector since 2007, when Gold Fields acquired all the remaining Western Areas and the South Deep gold mine for R22.2bn.
According to a Zephyr report published by Bureau van Dijk, there were only 38 M&A transactions to the tune of e3.4bn (R33.5bn) in the South African mining sector last year, compared with 28 deals worth e2.71bn in 2009. In terms of value, the 2010 deals put South Africa in the bottom half of the top 10 biggest mining deals by value, behind Canada, Australia, Russia, China, US, Papua New Guinea and Brazil.
Rishon Chimboza, a senior consultant at pan-African investment consulting firm africapractice, said he expected a slowdown in mining M&As because shareholders did not appear to have much appetite to pursue major deals, with all the regulatory approval and price regulation they had to go through.
On the other hand, the picture is more encouraging for junior companies.
Percy Takunda, an analyst at Imara SP Reid, said: “In the junior platinum space there is always room for consolidation. But the problem is that they (junior companies) do not come widely discounted anymore.”
Peter Leon, a partner at Webber Wentzel, said the existence of regulatory uncertainty in the form of a more interventionist revised Mining Charter and the uncertainty around the proposed amendments to the Mineral and Petroleum Resources Development Act were some of the factors already pushing investors to look elsewhere.
This was not only detrimental to the M&A outlook but to investor confidence as well.
“The pending decision of the ANC with regard to mine nationalisation, coupled with the continuing difficulty that some foreign investors have in understanding and complying with black economic empowerment requirements, could hinder investment in the (local) mining industry,” he said.
Leon said clarity was necessary for investors to commit money in mining, particularly with its long lead times and massive capital expenditures. - (sourced:Business Report, www.iol.co.za)
Tags:high-vol (high volatility) met coal, political climate, Pan- African investment, Africanpractice, Mining Charter, technical mining risks, long-term projects, risk analysis, acquire assets,Anglo American Plc, Black Mountain Mining zinc, Renaissance Capital, capital-intense,
Monday, February 21, 2011
Regulatory uncertainty puts investors off SA mine assets
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