Today’s commodities news leads off with a new report on mergers and acquisitions in the metals sector, including a failed try at selling a copper miner. There’s also a new report on grain production and pricing for the coming year.
Auditing and consulting firm Pricewaterhouse Coopers (PwC) has released a new report on global M&A activity in the metals industry. The report notes that two of the four mega-deals ($1 billion or more) in the first quarter of 2011 came from private equity firms, not from competitors seeking a strategic gain.
Almost 40% of acquisition targets in the first quarter were iron ore producers. The biggest deal was the acquisition of Canada’s Consolidated Thompson by Cliffs Natural Resources Inc. (NYSE: CLF) in a deal worth nearly $5 billion. The deal gives Cliffs more exposure in China through Thompson’s sales of iron ore to Wuhan Steel.
PwC said metals deals in the first quarter totaled 26, identical with fourth quarter 2010 totals. The total value of the deals fell sequentially from $14 billion to $12.9 billion, and the value of an average deal was flat at $500 million. Year-over-year, first quarter deals rose from 24 last year to 26, and the dollar value more than doubled.
Part of the reason for the growth in acquisitions is that metals firms have raised their average cash on hand to $2 billion, which combined with low interest rates gives the companies additional buying power. PwC expects financial investors like private equity firms to continue buying the sector, but says these investors are more likely to seek downstream investments, leaving the mines to other metals companies.
Copper and zinc miner Lundin Mining Corp. (OTC: LUNCF) put itself on the auction block in March in an effort to combat a hostile takeover offer of $4.4 billion from Equinox Minerals Ltd. Lundin’s CEO thought the offer was too low, but was unable to gin up any others. Then Barrick Gold Corp. (NYSE: ABX) offered to buy Equinox for $6.5 billion, provided that Equinox drop its offer for Lundin. That offer took Equinox about 2 heartbeats to accept.
Now Lundin’s CEO has resigned, effective June 30th. The resignation follows Lundin’s failure to attract a bid that it believed fairly valued the company. Lundin did have a merger agreement with Inmet Mining Corp. (OTC: IEMMF) that would have formed a $9 billion copper miner until the Equinox hostile offer came along. It sounds like Lundin’s CEO got outwitted in an acquisition chess game. If that’s the case, he is rightly looking for a new job.
Finally, the International Grains Council has lowered its forecast for global wheat production from its April estimate of 672.2 million tons to 667.3 tons. That compares with global production last year of 649.1 million tons.
Wheat prices will remain high as bad weather in Europe and the US are likely to lower harvests, even as wheat stockpiles will continue to shrink. The Council now expects global grain production of 1.803 billion tons in 2011-2012, up 4% from the previous year. Global consumption will total 1.812 million tons, furthering reducing stockpiles.
Corn prices are up nearly 2% around mid-day and wheat prices are up nearly 4%. The Market Vectors Agribusiness ETF (NYSE: MOO) is up about 1%, to $54.08, in a 52-week range of $35.62-$57.93. The PowerShares DB Agriculture Fund (NYSE: DBA) is also up about 1%, to $32.87, in a 52-week range of $22.85-$35.58. The Teucrium Corn Fund (NYSE: CORN) is up nearly 2%, to $46.03, in a 52-week range of $23.79-$48.77.