23/02/2015 - 13:52

Mining M&A to pick up: EY

23/02/2015 - 13:52

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The financial incentives for higher cost mid-tier miners to either share infrastructure or merge is at an all-time high, according to accounting firm EY.

Mining M&A to pick up: EY
Mineral Resources’ proposed new transportation system involving self-propelled wagons on an elevated track that it aims to build from its Iron Valley project to Port Hedland 330 kilometres away.

The financial incentives for higher cost mid-tier miners to either share infrastructure or merge is at an all-time high, according to accounting firm EY.

EY Asia Pacific Mining & Metals Transactions Leader Paul Murphy told Business News while previous attempts at open access or shared infrastructure in Western Australia’s mining industry had failed or remained mired in court proceedings, the current market offered greater opportunities for cooperation.

“We’re going through this phase now where the global rebalancing of demand and supply of commodities is occurring and I think with the benefit of hindsight and impairments that have occurred there’s less appetite these days to commit huge parts of your balance sheet to a project,” Mr Murphy said.

“Anything which allows you to reduce (costs), or to share it or to do a strategic joint venture we think that’s a direction people will go.

“If commodity prices stay at the mid level of the cost curve then the only way for it to make sense to develop projects is (having) shared infrastructure, reduced balance sheet exposure and more efficiency in transportation.” 

The comments come as mid-tier iron ore miner Mineral Resources announced plans to develop a multi-user transhipping operation out of Port Hedland and a new low-cost elevated rail system it said could benefit all mid-tier Pilbara miners.

MinRes announced today it was working with the state government to secure port access following a deal it signed with Canadian company CSL Transhipment. It continues to also lobby the government and port authorities to reduce storage and ship loading charges.

Managing director Chris Ellison said that, following a trial development of the elevated rail system to be built by China Southern Rail, it expected to start building the 331-kilometresystem and rolling stock by the end of this year and estimated it could be completed by the middle of 2017.

As part of further reductions to its supply chain, MinRes also announced plans to build a beneficiation plant at Iron Valley to increase its iron content from 58 per cent to 62 per cent.

EY’s latest annual mining M&A report released today found the deal volume in the Australian mining and metals sector declined for the fourth consecutive year to 144 deals in 2014, down from 178 in 2013 and the lowest since 2003.

Mr Murphy said the lack of deals was not due to a lack of interest.

Proposed sales such as Cliffs Natural Resources’ 11 million tonnes of iron ore per annum Koolyanobbing mine near Southern Cross are understood to be falling through because of a difference of opinion about the current and projected value of projects.

“Buyers have one view on where the iron ore price might end up and sellers have a different view and what happens when there’s a price gap is there’s no deal,” Mr Murphy said.

“The reason for that is there’s a different view on where the price (of commodities) is going to settle at (and) there’s not a lot of burning desire to get deals done at any cost.

“Buyers are more playing a waiting game, hoping the price will come down more and not getting pushed by their board to do deals. There’s no urgency for it.

“Sellers are waiting for prices to recover a bit and because of interest rates (being) where they are they’re not absolutely desperate to sell either.

“It’s almost this impasse.”

Business News’ feature this week on junior miners discusses in greater detail the issues facing WA's mining and associated corporate finance sectors.

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