PwC mining leader Jock O'Callaghan says China needs to find ways to meets its urbanisation targets. Picture: AFP Source: PerthNow
CASHED-UP Chinese state owned companies are tipped to be the big winners in a year of consolidation within the mining industry after last year's disastrous procession of billion dollar write-downs by some of the mining giants, a new report warns.
The PricewaterhouseCoopers mining report said there will be no repeat of last year's mega-mergers as the mining giants instead focus on delivering shareholder value by developing existing assets.
Commodity prices are expected to stabilise in 2013 but with Chinese demand strengthening as its economy continues to urbanise and meet its 7.5 per cent growth targets iron-ore, copper, coal and nickel are tipped to be among the big winners over the coming years.
PwC mining leader Jock O'Callaghan said commodity prices will continue to be volatile over the short term but remain on an upward trajectory over the medium to long term.
"China still needs the raw materials to meet its urbanisation targets of putting 12 million people a year into new cities that haven't even been built," he said.
"As a result there will be no slowdown in the in the appetite from off-shore to buy-up Australian mining companies or even take minority stakes. This is driven from China but Indian and Japanese companies are also looking for deals."
Almost $US110 billion was spent on mergers and acquisitions last year, but excluding the $54 billion blockbuster merger of Glencore and Xstrata this was the lowest value since 2009 and the volume of deals was down to its lowest level in eight years.
Chinese companies were responsible for only 9 per cent of the deals in 2012 but a greater risk appetite and the countries relentless drive for urbanisation is expected to see Chinese M&A activity rise sharply in the coming five years.
Mr O'Callaghan said the next 12 months will also likely see the majors such Rio Tinto and BHP Billiton sell-out of some of their non-core assets following a series of billion dollar writedowns last year.
"The main game will continue to be the need to reduce transaction risk, boost shareholder value and demonstrate discipline about where and how capital is allocated," he said.
"Miners across the world are operating in a global market where risk factors such as cost and resource nationalism are on the rise and where buying and selling specific assets have political consequences. But good deals find a way to get done."
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