The worldwide picture by Enrst & Young

1. Mergers, acquisitions
and capital raising in
mining and metals
2011 trends
2012 outlook
Recognizing value in volatility

2. 2 Mergers, acquisitions and capital raising in mining and metals

3. About this study
The data is primarily sourced from ThomsonONE.com. This data has been supplemented
with IHS Herold, Capital IQ, Mergermarket and Factiva.
• Commodity analysis is based on the primary commodity produced.
• Unless otherwise stated, all values are in US dollars.
Notes on the data:
Mergers and acquisitions (M&A) Capital raising
• Only completed deals are included. The primary source for this data is
Deals identified as incomplete, pending, ThomsonONE. Certain details have been
partly incomplete, unconditional or supplemented with information from
intended as of 31 December 2011 company and stock exchange websites
were excluded. and major business press. Only completed
• The acquirer country is based on transactions are included.
the ultimate owner’s geographic • Only original Initial Public Offerings
headquarters. The target country is (IPOs) — the first time that a company
determined by where the primary issues equity to the public — are included
targeted asset or company is located. in the IPO analysis. Proceeds are
• Country-based refers to domestic and allocated to the primary exchange of
inbound deals. issue.
• A country’s acquisition refers to • Equity issues are geographically
domestic and outbound deals. categorized by the primary exchange
where the issuer’s stock trades, except
• The value of M&A activity by commodity
where stated. Where a company offers
includes deals where the given
Global Depositary Receipts or American
commodity is the acquirer and/or
Depositary Receipts, the issue is
target’s primary commodity. Commodity
allocated to the destination market of
charts illustrate the value of deals where
those shares.
the given commodity is the target.
• Loan data and proceeds include
• The data does not capture the value of
refinancing and amendments to existing
transactions where this information is
debt, and are as per Thomson Financial
not publicly available.
intelligence. Proceeds are allocated to
• ‘Megadeals’ refer to all deals with a the geography of the borrower.
value equal to, or more than, $1b.
• All credit rating references are to
Standard & Poor’s long-term issuer
ratings, unless otherwise stated.
Mergers, acquisitions and capital raising in mining and
metals — 2011 trends, 2012 outlook
This Ernst & Young study examines transactions and financing in the mining and
metals sector in 2011, and discusses the outlook for 2012.
It provides an in-depth analysis of the major global mining and metals
transactions, capital markets and resulting capital flows, by considering mergers
and acquisitions (M&A), initial public offerings (IPOs), bonds and loans. It also
provides an analytical breakdown by country and commodity.
2011 trends, 2012 outlook 3

4. This report was authored by:
Lee Downham
Global Mining & Metals
Transactions Leader
Ernst & Young, UKI
Tel: +44 (0)20 7951 2178
ldownham@uk.ey.com
Conte
Themes
Mike Elliott
Global Mining & Metals Leader
Ernst & Young, Australia
Tel: +61 2 9248 4588
michael.elliott@au.ey.com
06 Executive summary
Michael Lynch-Bell 10 Mergers & Acquisitions
Global Mining & Metals
Transactions Partner
Ernst & Young, UKI 20 Capital raising
Tel: +44 (0)20 7951 3064
mlynchbell@uk.ey.com
30 Outlook
Paul Murphy
Asia-Pacific Mining & Metals
Transactions Leader
Ernst & Young, Australia
Tel: +61 3 9288 8708
paul.murphy@au.ey.com
Nicky Crabtree
Assistant Director, Transactions Advisory
Services
Mining & Metals, UKI
Tel: +44 (0)20 7951 5237
ncrabtree@uk.ey.com
Natasha Johns
Senior Analyst, Mining & Metals
Ernst & Young, Australia
Tel: +61 2 6267 3887
natasha.johns@au.ey.com
Emily Colborne
Senior Analyst, Mining & Metals
Ernst & Young, UKI
Tel: +44 121 5352086
ecolborne@uk.ey.com
And thank you to the Ernst & Young global
Mining & Metals team for their support.
Mergers, acquisitions and capital raising in mining and metals

5. ents
Appendix
Country analysis
Frontier markets 33
Australia 36
Brazil 38
Canada 40
China 42
Commodity analysis
India 44
Aluminium 59
Indonesia 46
Coal 60
Japan 48
Copper 61
Russia 50
Gold 62
South Africa 52
Iron ore 63
United Kingdom 54
Nickel 64
United States 56
Potash/Phosphate 65
Silver, Lead, Zinc 66
Steel 67
Uranium 68
2011 trends, 2012 outlook

6. Execu
Financial strength of the mining and metals sector
By the end of the second half of 2011, the mining and metals
sector had successfully ridden the storm of global economic
uncertainty, emerging financially stronger and poised for growth.
Balance sheets are stronger, with many companies faced with
the challenging but positive decision of how best to utilize their
capital — the dilemma of buy, build or return is back on many
boardroom tables.
Despite their recent fall, 2011 commodity prices were up on
2010, driving an improvement in earnings and cash positions.
This cash, together with the buoyant corporate debt market, was
the primary source of funding for the majors such as Xstrata,
Vale, BHP Billiton, Rio Tinto, Anglo American and Glencore. As a
result, we saw the junior and mid-tier companies take up a greater
share of secondary equity funds during 2011, a trend we expect
to continue into 2012.
Bulks and metals price performance (2010–2011)
170
150
Indices rebased to 100 at 1 Jan 2011
130
110
90
70
50
2010 2011
Aluminium Nickel Silver Iron ore
Copper Gold Thermal coal
Source: Thomson Datastream
6

7. utive
summary
During the second half of 2011, equity markets were increasingly
turbulent and as a result alternative funding sources emerged,
a trend that will continue in 2012. Funding provided by private
M&A — deal value up, but volumes stunted
The financial strength of the mining and metals sector would
wealth, the majors, state-owned enterprises and sovereign wealth ordinarily present an ideal environment for M&A. However,
funds, in return for strategic holdings and/or for off-take, have all while total deal value was up 43% on the prior year to $162.4b,
offered a broader range of financing options. volumes were down 10% to 1,008, highlighting the difficulty in
evaluating, financing and executing deals at the junior end
The further opening up of bond markets during 2011 provided of the market.
access to capital to support the growth ambitions of both
the majors and the sector’s mid-tiers. Total proceeds from Value and volume of deals by size (2000–2011)
bond offerings reached $84b, an increase of 16% on 2010.
250 1,200
This increase was driven by companies taking advantage of
tightening credit spreads and overall strong demand for access 200 1,000
to comparatively cheap debt. High yield bond issues dominated 800
Volume
150
during the first half of 2011, but contracted during the latter
($b)
600
half of the year as sovereign debt concerns continued to go 100
400
unresolved across Europe and the US. Conversely, investor
appetite for high grade issues remained buoyant throughout 50 200
2011, highlighting the importance of maintaining an investment - 0
grade credit rating. This will help to underpin the capital allocation
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
decisions of boards in the year ahead.
During 2011, loan proceeds increased marginally by 2%, with <$200m Between $200m and $1b
companies borrowing or re-financing over $187b of debt, > $1b Volume
primarily to lock-in favorable rates compared to existing debt and
extend tenor in order to provide greater financing agility. There During 2011, strategic M&A dominated in the mining and
were also limited examples of borrowing to finance M&A, such as metals sector where the urge to drive down operational costs
BHP Billiton’s syndicated bank loan of $7.5b for its acquisition of and achieve growth simultaneously remained the focus of many
Petrohawk Energy, and loans by Barrick Gold, Arch Coal and Cliffs mining and metals executives. Sensible, lower risk transacting
Natural Resources to part-finance their respective acquisitions. was top of the agenda. This gave rise to an increase in large scale
domestic consolidations, offering the promise of synergies and
While loan proceeds increased, gearing across the majors, and to
conducted in a familiar environment. These deals provided a low
a lesser extent the mid-tiers, is at an all time low. Leverage has
risk way of achieving growth and leveraging existing knowledge
been tamed and balance sheets are far stronger than they were
of the market. While the most significant of these was Uralkali’s
going into the global financial crisis in 2008. The average gearing
combination with Silvinit, valued at $8.2b and forming the
levels across a sample of majors had decreased to just 12% at
largest potash company in the Commonwealth of Independent
June 2011 compared with 69% at December 20081. As a result,
States (CIS) region, this trend was seen most in North America.
we do not expect to see a significant equity call from the majors
Consolidation occurred primarily among large North American
during 2012, even in the event of weakening global economic
coal companies, striving to achieve economies of scale to improve
conditions. This leaves a greater proportion of equity available to
their global competitive position.
the juniors and mid- tier mining companies.
1
Gearing based on net debt/shareholders’ equity for a representative sample of companies. Please refer to Ernst & Young’s previously
published reports, “Wall of debt” and “Life after debt” for further information.
2011 trends, 2012 outlook 7

8. “Global uncertainty is driving volatility in the equity markets
to a degree not seen since the 2008 global financial crisis.
Despite this, mining and metals companies are learning
to live with uncertainty, balance sheets are stronger and
companies are positioned to seize opportunities, albeit with
more caution than witnessed during the peak of 2007.”
Lee Downham
Global Mining & Metals Transactions Leader,
Ernst & Young, United Kingdom
Another key trend in 2011 was the intensified fight to acquire we did not witness any $10b plus deals during 2011, despite
scarce low cost, long life deposits. Rio Tinto’s acquisition of the capacity to transact. This was because management was
Riversdale Mining for $3.9b and China Niobium Investment’s understandably uncomfortable executing transformational deals
$2.0b acquisition of CBMM are examples of this trend. Further, that would place balance sheets under financial pressure.
we are seeing majors acquiring or making strategic investments in
junior exploration companies in order to manage their pipeline of Economic volatility and resource nationalism
resources. challenged equity markets and management’s
In value terms, the M&A completed during 2011 was dominated
appetite for M&A
by developed mining countries, such as the US, Canada and Although sizeable deals completed during 2011, macroeconomic
Australia. In addition, emerging and frontier mining regions issues and resource nationalism made investment decisions more
are continuing to gain importance and provide a wealth of difficult, contributing to lower volumes of M&A during 2011
opportunities, particularly across Africa, South America and compared with 2010.
Asia. For some, such as Chinese mining and metals companies,
During the second half of 2011, the US credit rating downgrade,
investment in these regions is taking the form of off-take
Eurozone debt crisis and lessening Chinese growth rates caused
agreements or minority stakes in ASX- or TSX-listed companies
dramatic stock market volatility and tested the confidence of
with assets in these regions. For others, such as a number of
many mining and metals companies to undertake M&A. In our
aspiring India-based mining and metals companies, it is taking
view, this will not last given that the sector fundamentals are
the form of outright M&A to sustain growth and become global
strong and growth from China and other BRIC (Brazil, Russia,
players in their own right.
India and China) nations will fuel demand for metals and minerals.
In deal value terms, coal took the lead as the most targeted Mining and metals companies are increasingly looking to transact
commodity during 2011, accounting for over $41.4b, an increase in ways that can accommodate continued volatility.
from $17.9b in 2010. This activity was primarily driven by
The equity markets are becoming increasingly sensitive to
the large coal producers looking to boost production capacity,
macroeconomic news, and for many companies, market values
together with vertical integration undertaken by large power and
do not appear to be correlating with the value under the ground.
utilities companies and steel companies to lock in the supply of
Increases in commodity prices are often not fully impacting share
raw material and manage volatility. This clearly demonstrates
prices, whereas decreases are. This is creating differing asset
confidence in coal over the life of existing mines, despite the
valuation expectations, impacting the ability to complete M&A.
rising tide of climate change policies and regulation.
This trend will increase the importance of conducting thorough
In volume terms, gold was the most targeted commodity with diligence, in order for management on both sides of the deal to
385 deals completed during 2011. While the main driver of this be at ease.
was consolidation between mid-tier mining companies and junior
Unsurprisingly, overall IPO volume was down 18% to 145 listings
explorers to boost production and resources, there were six mega
in 2011, with global equity markets weighed down by volatility
deals targeting gold completed during 2011 which consolidated
and uncertainty. However, there was still a healthy number of
some of the world’s major gold companies.
small-scale junior IPOs in Australia and Canada.
Activity from the majors was dominated by BHP Billiton’s
The challenging market conditions made the biggest impact at
move into US oil/shale gas. Outside of these deals, the majors’
the larger end of the market, with proceeds, excluding the IPO
M&A activity focussed on opportunistic acquisitions, rounding
of Glencore, down 59% on 2010 and a record number of IPOs
out minority holdings and divesting non-core or higher cost
postponed and remaining firmly in the pipeline.
businesses, as well as, returning cash to shareholders. Outside
of BHP Billiton’s acquisition of Petrohawk Energy for $11.8b,
8 Mergers, acquisitions and capital raising in mining and metals

9. Executive summary
The spread of resource nationalism across developed, emerging mining and metals companies are increasingly looking at multiple
and frontier countries was a key concern among mining and financing options and in making valuations are factoring in cash
metals executives, causing uncertainty and delay to M&A flows on a longer term basis and applying risk on a much more
investment decisions. Resource nationalism is often viewed as sophisticated basis.
a part of doing business in the sector and the risk is factored
Beyond the junior listings, a record number of IPOs were
into deal valuations, but the increasing prevalence of resource
postponed in 2011 and there is a strong pipeline of companies
nationalism, and the uncertainty that it generates, is making it
that will “pounce” when there is a sustained period of confidence
harder to value assets over the life of mine. However, for those
and stability in equity markets. If markets stabilize, this may
governments who continue to debate legislation and manage
happen in the second half of 2012.
these changes less efficiently, the uncertainty could potentially
deter investment for anything other than the largest, most The fitter and faster companies will be best placed to maximize
scalable and low cost assets. opportunities for growth during 2012. We expect the number
of deals in those emerging and frontier countries that have high
Outlook — striking the balance and exploring capital quality resources and friendly foreign investment rules to ramp
raising options up this year as risk appetites increase. This shift is primarily
due to the diminishing availability of quality mineral deposits in
Robust demand fundamentals, strong balance sheets and an
developed mining countries at a reasonable price.
appetite for growth will drive a step-up in M&A in the global
mining and metals sector in 2012. The uncertainty and volatility
is likely to continue through 2012, but mining and metals The Capital Agenda
companies have an appetite for growth and are increasingly
Based around four dimensions, it helps mining and metals
unwilling to stall their growth plans, so it’s likely there will be a
companies consider their issues and challenges and
return to deal-making in 2012. Those who can work with volatility understand their options to make more informed capital
will be the dealmakers in 2012 and there may well be real buying decisions.
opportunities.
1. Preserving capital: reshaping the operational and
The focus of capital raising in 2011 was not aggressive capital base
re-leveraging but clever re-financing. Companies are coming into 2. Optimizing capital: driving cash and working capital and
2012 with credit rating strength and the capacity to gear up for managing the portfolio of assets
future acquisitions.
3. Raising capital: assessing future capital requirements
Mining and metals companies will continue to tap the corporate and assessing funding sources
bond market in 2012 and we also expect to see a further increase 4. Investing capital: strengthening investment appraisal
in the use of alternate financing sources such as sovereign wealth and transaction execution
funds, private wealth and strategic partnerships using options
such as off-take arrangements. To view our Global Capital Confidence Barometer: Mining & Metals,
go to www.ey.com/miningmetals
With the increased preparedness to do deals, it is unlikely that
bigger deals will be entirely financed by bank debt in the short
term. Companies may be returning to deal making but there will
be a lag before banks return to megadeal M&A. This means that
2011 trends, 2012 outlook 9

10. 10
Executive
summary
Mergers &
Acquisitions
Trends, drivers and M&A values
and volumes
Commodity analysis
Regional analysis

11. “Despite continuing global economic
uncertainty, the value of M&A activity in
the mining and metals sector during 2011
reached its highest levels since the peak of
2007, proving the importance of acquisitions
to the sector’s overall growth agenda.”
Lee Downham
Global Mining & Metals Transactions Leader
Ernst & Young, United Kingdom
Trends, drivers and M&A values
and volume
In 2011, we saw extreme market turbulence and volatility, with and the prospect of closing deals. However, the global economic
economic uncertainty rivalling the early days of the 2008 global backdrop and heightened market volatility made it tough for
financial crisis. Fears of a double-dip economic slowdown in the management to both evaluate and execute M&A. As a result,
US were heightened by concerns of a financially driven crash in many potential acquirers showed a high level of caution in the
Europe and compounded by lower Chinese short term growth latter part of the year. Despite uncertainty, 1,008 deals with a
prospects. total value of $162.4b were completed in 2011.
Despite this, mining and metals companies demonstrated Historically, deal value has been driven by high-value megadeals
continued confidence and desire for inorganic growth. We (>$1b). Looking back to 2006/2007, a small number of large
observed M&A being weighed up against the value of investing in megadeals drove incredibly high deal values. By contrast, in 2009
organic growth and returning cash to shareholders via dividends we saw far fewer megadeals.
or share buybacks. Market turbulence created opportunities to
While the $10b plus deals remain elusive, in 2011 there were 28
acquire quality assets at depressed prices, at times promising to
megadeals which drove growth, and at $106.6b they accounted
create greater value than building new mines or returning cash
for two thirds of deal value. While there was capacity to transact,
to shareholders. The preferred assets were generally large and
management were understandably uncomfortable to execute on
low-cost, and could be taken on without negatively impacting a
transformational deals that would put balance sheets under the
company’s credit rating.
kind of strain experienced prior to the global financial crisis of
Low gearing, strong earnings and good capital availability created 2008/2009.
an opportunistic environment for M&A in the first half of 2011.
Executives showed they were positive about deal opportunities
Volume and value of deals (2000–2011)
2010-2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Growth
Volume 392 380 475 475 596 564 701 903 919 1,047 1,123 1,008 -10%
Value ($m) 38,747 66,745 56,347 46,182 26,350 65,430 175,713 210,848 126,884 60,035 113,706 162,439 43%
Average
99 176 119 97 44 116 251 233 138 57 101 161 59%
value ($m)
Median
8.9 5.9 5.0 4.4 3.1 4.8 6.2 7.2 6.0 3.2 5.2 5.6 9%
value ($m)
2011 trends, 2012 outlook 11

12. “Our analysis shows that the majors are ready to
transact for the right opportunities, particularly
those that add materially to long term growth.”
Natasha Johns
Senior Analyst, Mining and Metals
Ernst & Young, Australia
Megadeals (2011)
Value Type Target Target Target Acquirer Acquirer Stake Acquirer commodity
($m) country commodity country (%)
1 11,776 Cross border Petrohawk Energy US Oil & gas BHP Billiton Australia 100.0 Diversified
2 8,391 Domestic Polyus Zoloto Russia Gold KazakhGold Group Russia 73.0 Gold
3 8,178 Domestic Silvinit Russia Potash/ Uralkali Russia 100 .0 Potash/phosphate
phosphate
4 7,359 Cross border Equinox Minerals Zambia Copper Barrick Gold Canada 100 .0 Gold
5 7,165 Domestic Massey Energy US Coal Alpha Natural Resources US 100 .0 Coal
6 5,499 Cross border Polimetall Russia Gold Polymetal International Jersey 83.0 Gold
7 5,390 Cross border Anglo American Sur Chile Copper Mitsubishi Japan 25.0 Trading company
8 4,949 Cross border Macarthur Coal Australia Coal Peabody Energy US 100.0 Coal
9 4,948 Cross border Vale — Aluminium Operations Brazil Aluminium Norsk Hydro Norway 100.0 Oil & gas
10 4,750 Cross border Chesapeake Energy — assets US Oil & gas BHP Billiton Australia 100.0 Diversified
11 4,112 Cross border Consolidated Thompson Iron Canada Iron ore Cliffs Natural Resources US 100.0 Iron ore
Mines
12 3,908 Cross border Riversdale Mining Mozambique Coal Rio Tinto UK 100.0 Diversified
13 3,527 Cross border Western Coal Canada Coal Walter Energy US 100.0 Coal
14 3,473 Domestic International Coal Group US Coal Arch Coal US 100.0 Coal
15 2,689 Domestic Cairn India India Oil & gas Vedanta Resources India 18.0 Diversified
16 2,129 Domestic Fronteer Gold US Gold Newmont Mining US 100.0 Gold
17 1,950 Cross border CBMM Brazil Niobium China Niobium Investment (CITIC, China 15.0 Steel
Baosteel, Anshan Iron & Steel and
TISCO)
18 1,913 Cross border Bumi Resources Indonesia Coal Vallar UK 25.0 Investment company
19 1,836 Cross border Ivanhoe Mines (Oyu Tolgoi) Mongolia Copper Rio Tinto UK 49.0 Diversified
20 1,762 Cross border Berau Coal Energy Indonesia Coal Vallar UK 85.0 Investment company
21 1,612 Domestic Coal & Allied Industries Australia Coal Hunter Valley Resources (Rio Tinto Australia 100.0 Diversified
and Mitsubishi)
22 1,524 Cross border Drummond — Colombian Colombia Coal Itochu Japan 20.0 Trading company
operations
23 1,514 Domestic Northgate Minerals Canada Gold AuRico Gold Canada 100.0 Gold
24 1,391 Cross border Metorex South Africa Gold Jinchuan Group China 100.0 Diversified
25 1,360 Domestic Inner Mongolia Yindu Mining China Nonferrous Weida Medical Applied Technology China 63.0 Medical
metals
26 1,192 Domestic Severstal North America — US Steel The Renco Group US 100.0 Steel
operations
27 1,171 Cross border Ventana Gold Colombia Gold AUX Canada Acquisition Inc Brazil 100.0 Investment company
(EBX Group)
28 1,127 Domestic Vale Fertilizantes Brazil Potash/ Vale Brazil 99.0 Diversified
phosphate
12 Mergers, acquisitions and capital raising in mining and metals

13. 01 | Mergers & Acquisitions
There was a diverse range of drivers for megadeals. A number of expanded into oil/shale gas to further strengthen its portfolio in
strategic, synergistic deals were completed domestically, whilst order to withstand greater risk and maximize growth opportunities.
others looked to use M&A to diversify both out of a commodity Only the largest players are able to justify such major strategic
focus and also geographically. For example, in 2011, BHP Billiton shifts to shareholders.
Value and volume of deals by size (2000–2011) Share of deal volume by size (2007–2011)
250 1,200 100% 1%
3% 2% 3%
4%
200 1,000 5%
95%
800 8%
8% 9%
Volume
150 7%
($b)
600
90%
100
400
94%
50 200 85% 90%
89% 89% 88%
- 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
80%
2007 2008 2009 2010 2011
<$200m Between $200m and $1b <$200m Between $200m and $1b > $1b
> $1b Volume
Outside of the megadeals, the key theme of 2011 was
Share of deal value by size (2000–2011) transacting with minimal risk. Deal drivers were synergies,
100% bolt-on growth and acquisitions that enabled companies to utilize
competitive advantages. Sensible, low risk transactions were the
80% 39% order of the day.
51%
62% 66% Mid-tier and junior level producers continued to acquire
60% 79% companies and projects in 2011, looking to bolt-ons to increase
scale and improve their ability to access capital. We observed a
40% 38%
number of companies continuing to streamline and unlock value
33%
25% from asset portfolios, divesting less economical, small scale and
20% 24%
14%
higher cost assets.
23%
13% 16% 10%
0% 7% As companies continue to strive to deliver better value to
2007 2008 2009 2010 2011 shareholders, we expect to see more divestments of low margin,
downstream assets such as Rio Tinto’s announcement that it
<$200m Between $200m and $1b > $1b intends to sell some of the smaller, higher-cost assets in its Rio
Tinto Alcan division, along with smelting and refinery assets in
Europe and the US1.
1
Rio Tinto to shore up its net cash position from asset sales, The Australian,
19 October 2011.
2011 trends, 2012 outlook 13

14. “Increasingly there is acceptance that high volatility
will exist for some time yet and mining and metals
companies are looking at new ways to transact in this
volatile environment.”
Michael Elliott
Global Mining & Metals Leader
Ernst & Young, Australia
Further, we expect to see the majors refine their portfolios to Target destination by risk level (2009–2011)
focus on margins rather than a race for production as we saw 100%
pre-global financial crisis. BHP Billiton’s announcement that its 13% 22% 25%
diamond operations in Canada may be entirely or partly sold2 is a 80%
good example of this strategy.
Share by value
37% 22%
60% 46%
While still dominating in volume terms, the number of <$200m
deals fell from 1,015 in 2010 to 892 in 2011, and their value fell 40%
53%
from $18.1b to $16.9b. It is not clear why there has been such 50%
20% 32%
a significant drop in volume of <$200m deals but perhaps this
is due to seller expectations. With prices depressed for much of 0%
2009 2010 2011
the year and no desperate need to sell up, most juniors probably
decided to ‘sit out’ the current market volatility. High risk Medium risk L ow risk
Risk management was again at the heart of a number of
companies’ decisions about investment locations. With increasing
A significant number of domestic deals were completed in North
levels of resource nationalism and greater underlying commodity
America, primarily as a result of domestic coal consolidation.
movements, sensitivity to single country and single commodity
These deals had clear synergies, were conducted in an
focus put pressure on many companies’ share prices.
environment where buyers had strong knowledge of markets and
Resource nationalism continued to be a key concern among regulations, and were therefore a low-risk way of growing through
mining executives, with rising government demands for higher leveraging a unique competitive advantage.
taxes and royalties raising uncertainty in M&A investment
decisions. In 2011, we saw more than 25 countries change their Share of domestic and cross border deals (2000–2011)
fiscal environment. Resource nationalism places a large cost 80%
burden on mining and metals companies and can influence the 70%
decision of where to invest in a particular country. While some 60%
Share by volume
governments managed the changes quickly and efficiently, a 50%
number of others did not, resulting in a slowdown in investment 40%
decisions. 30%
20%
In 2011 we witnessed an interesting development, with more 10%
deals being done in both high risk3 and low risk nations. This 0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
is likely a result of increasing resource nationalism. So many
countries have announced reviews in resource policy that risk
differentials across developed, emerging and frontier economies Share of domestic Share of cross border
have narrowed such that the middle ground is no longer as
appealing to executives from a risk reward perspective.
In emerging and frontier nations, companies were more prepared
2 to take on the greater levels of risk given the potentially higher
Review of diamonds business, BHP Billiton press release, 30 November 2011.
3
The risk level is based on IHS Global Insight’s country risk rating system that
returns. These deals tended to be smaller in size, suggesting
contrasts the investment climate in 203 countries. The system separately rates that companies were more prepared to take on higher risks if the
the political, economic, legal, tax, operational and security environments in each
country to provide a comprehensive picture of the quality of conditions and level
stakes were lower.
of stability encountered by investors in each country. The principal quality these
ratings measure is stability.
14 Mergers, acquisitions and capital raising in mining and metals

15. 01 | Mergers & Acquisitions
Definitions of developed, emerging and Commodity analysis
frontier nations
Uncertainty about economic growth resulted in a number of
Developed markets major mining and metals price corrections during the year.
are those countries that are thought to be most developed While appetite to do deals was strong, alignment of valuation
and therefore less risky. They are high income economies, expectations proved incredibly difficult to achieve with such
with a developed market and regulatory environment. volatility in commodity prices. The question to consider now
Emerging markets is whether commodity prices are beginning to adjust to a new
are nations with social or business activity in the process normal, or whether the recent economic challenges have simply
of rapid growth and industrialization. In this analysis, we tempered the super cycle?
have extracted Brazil, Russia, India and China (BRIC) from Bulks and metals price performance (2010–2011)
Morgan Stanley’s Capital International Capital Index of
emerging markets. 170
Frontier markets
are a subset of emerging markets. They have lower market 150
capitalization and liquidity than the more developed emerging
Indices rebased to 100 at 1 Jan 2011
markets.
130
Where countries do not appear in these indices, we have used
the above definitions to categorize them.
110
Share of domestic and cross border deals by target country type (2011)
90
100%
68% 65% 21% 16%
80% 70
Share by volume
84%
79%
60%
50
40%
2010 2011
32% 35%
20%
Aluminium Nickel Silver Iron ore
0% Copper Gold Thermal coal
BRIC Developed Emerging Frontier
Source: Thomson Datastream
Cross border Domestic
2011 trends, 2012 outlook 15

16. Value of deals by targeted commodity (2011) Coal regained its lead as the commodity with the highest deal
value in 2011, accounting for $41.4b, up from $17.9b in 2010.
($m) Coal 41,351 This activity was primarily driven by major players looking to
Gold 34,495
boost production capacity to meet increasing demand from
China and India. It was also due to large power utilities and steel
Copper 19,802 companies, often with government backing, integrating upstream
Oil & gas 19,540 raw materials to manage volatility and long term security of
supply. This clearly demonstrates confidence in coal over the life
Potash/phosphate 10,430
of existing mines, despite the rising tide of climate change policies
Iron ore 8,881 and regulation.
Steel 7,262 Record sector cash margins and a positive medium term outlook
for the gold price meant companies with a primary interest in
Aluminium 6,479
gold were the most sought after M&A target by volume. In 2011,
Silver lead zinc 3,621 there were 385 gold deals representing 38% of all deals in the
sector by volume. In contrast with other commodities, the global
U ranium 1,627
economic uncertainty, low (or negative) real interest rates and
Other 8,951 a weak US dollar supported the price of gold as a safe-haven
asset, which in turn augured well for M&A in the gold sector. The
principal drivers of gold M&A remain strategic as opposed to
Volume of deals by targeted commodity (2011) opportunistic. Replacing reserves is becoming more challenging
for major producers as operations mature and grades decrease.
Gold 385 The majority of gold targets were junior mining projects, and with
gold equities lagging the price of gold, these targets offered good
Coal 138 value in 2011. Confidence in sustained higher gold prices allowed
acquirers to take on more risk (especially political risk) and to
Copper 75
diversify into more copper production.
Iron ore 63
Looking into 2012 and beyond, we expect to see more activity
Silver lead zinc 57
in steel, a sector that remains more fragmented than other
metals and looks poised for further consolidation. A deal in the
Steel 40 pipeline for February 2012 is the merger of Nippon Steel and
Sumitomo Metal Industries, worth $9.4b, which will create the
U ranium 30
world’s second largest steel maker behind ArcelorMittal. While still
Rare earths lithium 26 speculative at this stage, consolidation in the potash sector could
be another big story in 2012.
Potash/phosphate 21
Oil & gas 16
Other 157
16 Mergers, acquisitions and capital raising in mining and metals

17. 01 | Mergers & Acquisitions
Regional analysis for raw materials from the Asia-Pacific region (China, South Korea
and India) has accelerated growth in mining asset ownership.
Mining companies were once the primary domain of countries This longer term trend notwithstanding, significant consolidation,
such as Australia, South Africa, the US and Canada. However, particularly in coal, and BHP Billiton’s investments in US
as high prices and strong demand have facilitated supply from oil/shale gas assets, saw North America take the lead as the
emerging nations, these traditional mining countries’ domination favored destination for M&A in 2011.
of mining assets has shrunk. At the same time, increased demand
Value of deals by target region (2006–2011)
Market share 2006 2007 2008 2009 2010 2011 2010–2011
(by proceeds $m) growth
North America 83,642 143,369 48,520 15,420 22,200 54,187 144%
Asia-Pacific 13,242 18,045 29,611 20,505 38,955 38,297 -2%
CIS 15,549 3,040 3,553 3,836 3,718 23,894 543%
Latin America 6,156 16,147 16,924 12,139 23,957 22,084 -8%
Africa 8,480 7,271 1,844 3,285 16,657 20,282 22%
Europe 48,113 22,976 26,432 4,608 6,613 3,564 -46%
Middle East 530 - - 242 1,605 131 -92%
Total 175,713 210,848 126,884 60,035 113,706 162,439 43%
Value of deals by acquiring region (2006–2011)
Market share 2006 2007 2008 2009 2010 2011 2010–2011
(by proceeds $m) growth
Asia-Pacific 10,449 18,965 46,148 20,197 49,688 58,924 19%
North America 41,773 77,886 35,057 13,661 35,481 48,964 38%
Europe 73,922 90,084 24,074 11,182 7,528 28,438 278%
CIS 16,620 12,348 13,015 5,248 4,196 19,457 364%
Latin America 23,801 7,653 8,079 8,181 14,799 3,987 -73%
Africa 7,561 3,526 511 1,419 1,480 2,437 65%
Middle East 430 375 - 72 533 231 -57%
Unknown 1,158 12 - 75 - - -
Total 175,713 210,848 126,884 60,035 113,706 162,439 43%
2011 trends, 2012 outlook 17

18. North America Latin America
M&A activity in North America picked up significantly in 2011, with Outward investment by Latin America fell during 2011, mainly
the value of acquisitions in the region increasing 144% to $54.2b. due to Brazilian companies reducing overseas’ investment and
This rise reflects an embedded confidence in the long term view concentrating on business opportunities within Brazil itself. While
of raw materials demand across the emerging economies and the inbound investment slowed in 2011, the region remains a top
opportunity delivered by depressed equity markets, as well as destination for exploration spending, despite sector challenges
historically cheap and available capital. The strategic driver for and some political noise. While there is potential opportunity in
many North American deals was the need to achieve the scale the region, Latin America’s project portfolio is expected to require
necessary to build a sustainable platform from which to seize a investment of some $236b over the next 5–10 years just for
share of growth markets outside the US. Consolidation, particularly project development4.
in coal, among North American miners provided the largest source
of transactions, but international acquirers, particularly from Asian
consuming countries, were also important. Commonweath
Independent States (CIS)
Asia-Pacific
CIS experienced the highest year on year growth, with deals
Many nations within the Asia-Pacific region battled inflation
targeting CIS assets up 543%, with a value of $23.9b. The bulk
concerns in 2011. China’s M&A activity was constrained by a
of this increase came from consolidation within the region. In
firmer focus on value, driven by a combination of domestic political
the potash sector, Silvinit and Uralkali merged to create a single
and economic pressures and a more mature approach to deal
national champion and one of the largest controllers of potash
making. With the slowdown of China’s manufacturing economy
in the world. Another deal of note in the region was the merger
and tightening monetary settings, China demonstrated a new
between Russia’s leading gold producer Polyus Zoloto and its
caution to M&A activity. Tellingly, two Chinese-listed entities —
subsidiary KazakhGold, making it a top 10 gold player.
Minmetals Resources and Yanzhou Coal Mining — walked away from
sizeable transactions due to valuation concerns. In contrast, many
Indian companies demonstrated increased bullishness towards
transacting, with a number of significant deal wins in the region,
notably for coal assets in Australia. We observed that the most
sought after commodities in the Asia-Pacific region in 2011 were
coal, iron ore and gold.
Europe
The Eurozone crisis impacted economic health in many European
countries, with governments across the region deploying policy
levers to maintain at best economic growth, and at worst
economic stability. However, mining and metals companies
continued to transact, with the value of deals up 278% to $28.4b,
the highest since the 2007 peak. The largest acquisition from this
region was completed when Norsk Hydro of Norway acquired the 4
Mining Intelligence Series: Outlook 2012, BNAmericas, October 2011.
aluminium operations of Vale for $4.9b.
18 Mergers, acquisitions and capital raising in mining and metals

19. 01 | Mergers & Acquisitions
M&A outflows for key nations
11,164
17,159
680 1,200 6,239
12,459 2,246
387 745 Russia
7,971 U K
Canada 117
486 U kraine
U S
537 1,836 Mongolia
630 France 267
851
16,603 China 9,079 9,199
14,961
16,549 99
5,618 Japan
133
Mexico
Colombia 130
Nigeria 293
1,524
Tanzania 3,726
Brazil 1,980
7,359 981 Indonesia
Peru Z ambia
417 Mozambique 730
698 231 3,908
Namibia 2,903
Australia 5,934
Chile 512 6,892
590 574 2,592
South Africa 19,063
6,114
Domestic (bubble size = deal value) Outbound (bubble size = deal value)
2011 trends, 2012 outlook 19

20. 20
Capital
raising IPOs
Follow on issues
Convertible bonds
Bonds
Loans

21. “Capital raising in 2011 was
characterized by a fragile
combination of caution and
opportunism.”
Emily Colborne
Senior Analyst, Mining and Metals
Ernst & Young, United Kingdom
In 2011, major producers were generally able to access capital The question, of course, is how this balance sheet strength will
with relative ease, sourcing finance with lower average borrowing be used. Clearly there is capacity to finance major, dare we
costs and longer tenors. A record $84b of corporate bonds were say transformational, deals, but these are likely to be limited.
issued and $187b of bank loans borrowed. The focus was not Our view is that much of the re-financing has been good,
aggressive re-leveraging but clever re-financing. A high level of opportunistic treasury management, providing the major
caution underpinned capital allocation decisions, meaning many producers with agile balance sheets that can be used for sizeable
companies entered 2012 with credit rating strength and capacity M&A of the right deal, or deals, that come along.
to gear up for future acquisitions.
However, as 2011 progressed, risk aversion took hold, equity
Many economies focussed on maintaining low interest rates, stalled, the high yield market effectively closed, and the pre-
which afforded opportunities for low cost borrowing, at the production junior sector looked set to pay the price. Junior IPOs
same time as increasing demand for higher yield investments — a slowed over the second half, with average proceeds falling to
perfect storm for the high growth, high risk, capital intensive $7m, while companies suffered heavy, indiscriminate share price
mining and metals sector. We observed opportunistic exploitation falls, seeing them head in to 2012 facing greater difficulty in
of favorable debt market conditions, enabling the mid-tiers, often accessing capital.
for the first time, to raise debt capital for acquisitions.
Capital raising by asset class — proceeds raised Capital raising by asset class — number of issues
Proceeds ($m) 2007 2008 2009 2010 2011 Change 2007 2008 2009 2010 2011 Change
IPOs 21,400 12,406 2,987 17,948 17,449 -3% IPOs 280 117 70 177 145 -18%
Follow ons 66,802 48,751 73,806 49,705 49,745 0% Follow ons 2,340 1,948 2,914 3,115 2,464 -21%
Convertibles 12,865 12,238 14,431 5,477 2,365 -57% Convertibles 81 78 97 74 73 -1%
Bonds 36,358 38,146 61,016 72,502 83,804 16% Bonds 108 140 150 186 174 -6%
Loans 110,787 171,691 62,420 183,875 187,059 2% Loans 83 268 178 247 294 19%
Total 248,212 283,232 214,660 329,507 340,422 3% Total 2,892 2,551 3,409 3,799 3,150 -17%
2011 trends, 2012 outlook 21

22. Capital raising by proceeds (2007–2011)
350
300
250
200
($b)
150
100
50
0
2007 2008 2009 2010 2011
L oans Bonds Convertibles Follow ons IPOs
Top 30 issues (2011)
Asset class Issuer (parent name) Nation Commodity Total proceeds ($m) Cumulative share of total industry proceeds
1 Loans Glencore International United Kingdom Diversified 11,875 3%
2 IPO Glencore International United Kingdom Diversified 10,048 6%
3 Loans ArcelorMittal Luxembourg Steel 10,000 9%
4 Loans United Company Rusal Russia Aluminium 9,330 12%
5 Loans BHP Billiton Australia Diversified 7,500 14%
6 Loans Xstrata United Kingdom Diversified 6,000 16%
7 Loans Arch Coal United States Coal 5,800 18%
8 Loans Cliffs Natural Resources United States Iron ore 5,450 19%
9 Loans Barrick Gold Canada Gold 5,000 21%
10 Bonds Barrick Gold Canada Gold 4,000 22%
11 Bonds Rio Tinto United Kingdom Diversified 4,000 23%
12 Loans Alcoa United States Aluminium 3,750 24%
13 Loans Vedanta Aluminium India Aluminium 3,642 25%
14 Follow ons Gerdau Brazil Steel 3,142 26%
15 Bonds Peabody Energy United States Coal 3,100 27%
16 Bonds Xstrata United Kingdom Diversified 3,000 28%
17 Bonds BHP Billiton Australia Diversified 3,000 29%
18 Bonds ArcelorMittal Luxembourg Steel 3,000 30%
19 Bonds POSCO South Korea Steel 2,883 31%
20 Follow ons Hebei Iron & Steel China Steel 2,521 32%
21 Bonds Shougang Group China Steel 2,350 32%
22 Bonds China Coal Energy China Coal 2,349 33%
23 Follow ons ThyssenKrupp Germany Steel 2,342 34%
24 Bonds Arch Coal United States Coal 2,000 34%
25 IPO Jastrzebska Spolka Weglowa Poland Coal 1,946 35%
26 Follow ons Molycorp United States Rare earths 1,363 35%
27 Follow ons Arch Coal United States Coal 1,315 36%
28 Follow ons Wuhan Iron & Steel China Steel 1,275 36%
29 Follow ons Ivanhoe Mines Canada Diversified 1,180 36%
30 Follow ons Minera Frisco Mexico Diversified 982 37%
Loan proceeds include refinancing and amendment of existing debt, as well as new issues.
22 Mergers, acquisitions and capital raising in mining and metals

23. 02 | Capital raising
“Global equity markets were weighed down by
volatility and uncertainty over much of 2011,
stifling growth opportunities for companies
seeking to go public for the first time.”
Nicky Crabtree
Assistant Director, Mining and Metals
Transactions Advisory Services, United Kingdom
IPOs The long-anticipated IPO of Glencore on the London Stock
Exchange (LSE) was the exception, accounting for nearly 60%
The challenging market conditions made their biggest impact at of IPO proceeds raised by the sector, and taking up a significant
the larger end of the market in 2011, with proceeds, excluding share of already-squeezed capacity among London equity
the IPO of Glencore, down 59% on 2010 and a record number of investors. Glencore’s secondary listing on the Hong Kong Stock
IPOs postponed and remaining firmly in the pipeline. Exchange (HKSE) confirmed the importance of gaining access
to local markets of demand and the increasing role the HKSE is
IPO volume and proceeds (2007–2011) playing in the sector.
25 300
20 250 Primary exchange of IPO (2011)
Proceeds ($b)
200
Volume
15
L ondon 10.8
150
10
100 Warsaw 2.1
5 50 Hong K ong 1.3
0 0
Shanghai 0.5
2007 2008 2009 2010 2011
Proceeds ($m) Glencore Volume Vienna 0.5
Other 2.2
The fear of slowing industrial growth in key metal consuming
nations saw resources stocks bear the brunt of risk aversion, 0 2 4 6 8 10 12
underperforming the metals prices, and bearing little relation to Proceeds ($b)
company or industry fundamentals. Volatility and the uncertain
outlook for metals made pricing of new issues difficult. We saw The Australian, Toronto and AIM exchanges took the dominant
investors preferring to place their bets on lower risk investments,
share of IPO volume, respectively, driving a year on year increase
while boards shied away from the heightened risk of mispricing
in IPOs over the first half. However, deteriorating market
and the short-term value destruction caused by poor after-market
conditions in the second half led to an 18% decline in volume for
performance.
the full year. Average junior IPO proceeds across those three
Performance of mining and metals equity indices vs metal prices (2011) exchanges were low at just $8m (compared with $21m in 2010).
110 For juniors, an IPO represents a platform from which to access
capital over the long term. The initial fundraising in these climates
Indices rebased to 100
100
90
was often a smaller issue than management would ideally have
at Jan 2011
liked, but it importantly put the company and its assets
80
‘on the map’.
70
60
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
FTSE All-Share Mining S&P/ASX 300 Metals & Mining
S&P/TSX Metals & Mining FTSE AIM Basic Resources
L ME Index
Source: Thomson Datastream
2011 trends, 2012 outlook 23