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KPMG Mining M&A Quarterly Newsletter Q2 2015

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KPMG Mining M&A Quarterly Newsletter Q2 2015 KPMG INTERNATIONAL Mining M&A Issues Monitor Quarterly Sharing Knowledge on topical issues in the Newsletter Automotive Industry Second Quarter 2015 October 2010, Volume Seven kpmg.com kpmg.ca 2 | Mining M&A Quarterly Newsletter Quarter rides on potash bid A blockbuster potash bid announced between PotashCorp of Saskatchewan and K+S AG in late June has the potential to propel global deal value for the second quarter of 2015 to $16.5 billion. K+S AG rejected the friendly offer two days after quarter-end. Excluding this deal, the quarter still generated $7.8 billion in deal value, up significantly from $3.7 billion recorded in the first quarter. Deal volume also rose by 29 percent. While the potash deal was the largest announced deal in the quarter, iron ore and nickel each posted a major transaction, and gold was involved in a spate of smaller deals. Gold and copper were both price gainers in mid-quarter, but finished with slim losses of 3 percent and 5 percent respectively. The global mining stock indices continued their downward trends, posting high single-digit losses. Equity Indices vs. Gold & Copper1 160 150 140 130 120 110 100 –3% –5% –7% 90 –9% 80 70 60 Jul-14 Jan-15 Apr-14 Apr-15 Jan-14 Oct-14 Jun-14 Jun-15 Feb-14 Feb-15 Sep-14 Mar-14 Mar-15 Nov-14 Dec-14 Aug-14 May-14 May-15 Gold Copper TSX/S&P Global Gold Index TSX/S&P Global Mining Index 1 Source: Bloomberg All figures expressed in U.S. dollars unless otherwise noted Source: Thomson, CapitalIQ, Company filings, KPMG analysis © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Mining M&A Quarterly Newsletter | 3 Global M&A Deal Value and Volume1,2,3 35 60 30 50 25 40 20 30 15 20 10 Deal Value (US$ billions) Value Deal 10 (# of transactions) Volume Deal 5 0 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Value Volume 1 Source: Thomson, Capital IQ and KPMG Analysis 2 Represents transactions above $50 million 3 Only includes announced transactions; excludes capital raisings and share buy-backs Potash leads the way and that it intends to curtail all but its The second-largest deal of Q2 comes On June 25, PotashCorp of Saskatchewan lowest-cost operations. PotashCorp at a time when the coal and iron ore made a friendly offer of $8.6 billion to denies these comments, saying the industries are also suffering through the board of directors of Germany’s transaction would simply combine two slow demand and lower prices. K+S AG, Europe’s major potash supplier best-in-class companies with minimal and the world’s largest supplier of overlap to create a global producer. The The third-largest transaction of the salt products. The bid represented a Canadian company remains interested quarter is an all-Australian affair. 40 percent premium to shareholders in pursuing its bid, not ruling out the Independence Group is spending based on stock prices at the time. K+S possibility of going directly to K+S $1.4 billion to acquire all the issued is poised to bring a new potash mine shareholders. Discussions continue. capital of Sirius Resources for shares into production next year – the Legacy PotashCorp itself repelled a multi- and cash. The prize for Independence project located in Saskatchewan not far billion hostile takeover from Australia’s Group is the Sirius Nova-Bollinger from PotashCorp’s mines with a similar BHP Billiton in 2010. The Canadian nickel/copper project in southeast capacity of 3 million tonnes per year. Government ultimately blocked the deal. Australia that is fully financed, under PotashCorp is also interested in the construction and expected to begin dominant market position for nutrients Iron ore, nickel go big production in 2017. With Independence that K+S holds in Europe. At a time when China’s steel industry Group’s diverse portfolio of multi-metal is slumping, China-based Zhongrun assets and a combined market cap of On July 2, the K+S board of directors Resources is making a major investment approximately $2 billion, the combined rejected PotashCorp’s offer, saying the in Mongolia’s iron ore sector. Intending entity has the potential to become price undervalued the company and to raise $4.6 billion through a share an ASX 100 company. The founder also expressing concerns about the issue, Zhongrun will spend $1.9 billion and managing director of Sirius will interests of its 14,000 employees. K+S of that equity to acquire three Mongolian depart with control of two exploration believes that PotashCorp does not need companies: Iron Ore International assets in a spinoff company called S2 additional production from the Legacy (Mongolia), Mongolia New La Le Resources, to be owned by former mine in current market conditions, Gao Te Iron Mining, and Shiny Glow. Sirius shareholders. Source: Thomson, CapitalIQ, Company filings, KPMG analysis © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 | Mining M&A Quarterly Newsletter Q2 2015 Global M&A Deal Value by Commodity1,2,3 Q2 2015 Canadian M&A Deal Value by Commodity1,2,3 Lithium 1% Other Coal 4% Gold 6% 10% Nickel 9% Iron Ore Global Canadian 12% Transactions Transactions Potash 53% Gold 16% Potash 89% 1 Source: Thomson, KPMG Analysis 1 Source: Thomson, Capital IQ and KPMG Analysis 2 Represents transactions above $50 million 2 Represents transactions above $10 million 3 Only includes announced transactions; excludes capital raisings and share buy-backs 3 Only includes announced transactions; excludes capital raisings and share buy-backs Gold rules the lower tier AuRico Gold engaged in a merger of seven Australian operations. Evolution For deals under $1 billion, gold holds of equals to create a new, leading will fund the acquisition through an down the lion’s share of transactions. intermediate gold producer. The entitlement offer and credit facilities. The largest gold transaction of Q2 combined company is expected to Barrick Gold has also agreed to sell a was all-American, as Newmont Mining yield 375,000 to 425,000 ounces of 50 percent interest in the Porgera gold made a move to acquire the Cripple gold from producing mines in Ontario mine in Papua New Guinea to launch a Creek & Victor (CC&V) gold mine from and in Mexico, with growth potential to strategic partnership with Hong Kong- AngloGold Ashanti for $820 million in reach 700,000 ounces. The development based Zijin Mining Group. Zijin will pay cash. Newmont will raise most of the portfolio includes a number of projects $298 million for this investment. In the cash through a share issue. CC&V is in North America and Turkey. future, Barrick and Zijin have agreed to a 20-year old mine in Colorado that is Barrick Gold has sold an asset in collaborate on projects and investments, currently being expanded with a new Australia to Australia-based Evolution leveraging the strengths of each leach pad, recovery plant and mill. It Mining for $550 million. The Cowal company. Barrick contributes strong will enable Newmont to add 350,000+ gold mine in New South Wales is a operating experience and assets, while ounces of gold per year at low all-in large scale, long life, open pit mine that Zijin brings engineering and construction sustaining cost. produces 230,000 to 260,000 ounces management capabilities and access Canada factored into all remaining per year. The all-in sustaining cost of to the Chinese market. gold transactions for the quarter. In production is $850 to $900 per ounce. an all-Canadian deal, Alamos Gold and The acquisition gives Evolution a total Source: Thomson, CapitalIQ, Company filings, KPMG analysis © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Mining M&A Quarterly Newsletter | 5 Canadian M&A Deal Value and Volume1,2,3 In Q2, Canada also generated a string of all-domestic gold transactions under 16 30 $35 million: 14 • NovaCopper has acquired all shares 25 of Sunward Resources for $34 million. 12 The merger will provide cash for 20 10 project development. • Oban Mining is spending a 8 15 combined $86 million to buy Eagle 6 Hill Exploration, Ryan Gold, Corona 10 Gold and Temex Resources, a Deal Value (US$ billions) Value Deal 4 group of four juniors the company Deal Volume (# of transactions) (# of transactions) Volume Deal 5 is seeking to consolidate into a 2 larger mining entity. 0 0 • Agnico-Eagle purchased all shares of Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Soltoro for $25 million, and receives Value Volume five exploration projects in Mexico. • GFM Minera acquired NWM 1 Source: Thomson, Capital IQ and KPMG Analysis 2 Represents transactions above $10 million Mining from bankruptcy, with 3 Only includes announced transactions; excludes capital raisings and share buy backs a bid of $22 million. • Premier Gold Mines acquired Goldcorp’s 40 percent interest in Nevada’s South Arturo Mine Project for $20 million. Source: Thomson, CapitalIQ, Company filings, KPMG analysis © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
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