Mining M&A standoff tests bankers' patience and skills

Thu Sep 12, 2013 9:48am EDT
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By Sonali Paul and Clara Ferreira-Marques

MELBOURNE/LONDON (Reuters) - Bankers trying to move a mountain of mining assets for sale are being tested to the limit by unreliable buyers, stubborn sellers and a widening gap between them that has already caused billions of dollars' worth of deals to be shelved.

Global mining firms are under pressure from investors to slim down after boom-year expansion ended badly for many of them. However, with demand from China's steel mills holding up the iron ore price, big miners are unwilling to sell assets cheap - unwanted or no - while potential buyers want a bargain.

The result has been a sharp dip in the value of deals announced in the metals and mining sector so far this year - just over $64 billion, roughly half the value of announced deals at the same time last year, according to Thomson Reuters data. The number of deals is down by more than a quarter.

"There is some pressure to put assets into the market, but those that have been coming down the pipe so far have been more difficult for buyers to get comfortable with," Julian Vickers, co-head of the global natural resources group at Barclays said.

Rio Tinto (RIO.AX: Quote) (RIO.L: Quote), for example, has been trying to sell more than $30 billion worth of assets from diamonds to iron ore to slash costs, cut debt and focus on their best assets.

So far, miners have succeeded in offloading copper, gold and nickel mines, most either in developed countries or in commodities where questions over supply linger. However sales of aluminum, diamonds, and coal assets, with fewer specialized buyers and in some cases a weak market, have been scrapped for lack of offers, or disappointingly low ones.

The result for bankers who have long profited from their close relationships with mega miners is that they have sacrificed manpower for auctions that have dragged on for over a year. Many are now taking on deals they know will be tough or impossible to seal, just to preserve client relationships.

"People are throwing themselves at fairly difficult mandates for nothing," said Robert Dunlop, global head of natural resources at Macquarie Capital.   Continued...

A woman runs past the reception desk of the Rio Tinto Limited Shanghai Representative Office in Shanghai March 22, 2010. REUTERS/Stringer