The gold sector continued to attract investors within North America during the first half of 2010, but explorers and miners of other metals increasingly turned to Asia for funding in exchange for off-take agreements. In keeping with a 3-year M&A downtrend, seniors and mid-tiers stayed on the sidelines or sold assets as their junior counterparts consolidated for growth or, more commonly, survival.

Meanwhile, political risk in countries like the DRC, Venezuela, Mongolia and even some Canadian provinces created challenging operating conditions for some companies, though permission for a green-field copper-gold operation in B.C. was hailed as a breakthrough in that province.

As the mining sector moved to preserve cash, the value of completed and pending M&A deals in the mining industry fell to US$77 billion in 2009, less than half the amount for the previous year and a shadow of the US$211 billion worth of deals completed in 2007. North America accounted for about 27% of the deal value.

Though optimistic of a recovery in M&A activity at the beginning of 2010, Jay Kellerman, a partner at Stikeman Elliot, was far less sanguine by mid year. “I don’t think we’re over what we’re going through in the global and capital markets,” he said. “I think companies that may have been willing to pull the pin on something in January are sitting back and holding off.”

On a broader scale, social issues between prospective consolidators including who will represent senior management and the board of directors continue to prevent logical consolidation from taking place. “Those are the biggest issues and they are why we don’t see more M&A in this sector – one CEO is going to lose a job,” says Kellerman.

Alex Tsukernik, director of investment banking for New York-based Rodman & Renshaw, agrees. He cites West Africa as an example of an exploration hotspot where more consolidation is warranted to take advantage existing infrastructure. He believes major shareholders should be more aggressive in encouraging management to consolidate.

Some of the higher profile M&As (all friendly) during the first half included:

• The merger of Quadra Mining and FNX Mining in an all-stock deal worth C$1.54 billion. The combined company will produce about 300 million pounds of copper and 150,000 ounces of precious metals in 2011.

• Osisko Mining Corporation’s takeover of Brett Resources Inc for US$372 million in stock. Osisko secures Brett’s gold deposit in Ontario as part of its strategy to become a one million ounce-plus producer in Canada.

• Kinross Gold’s acquisition of Underworld Resources to secure the White Gold property in the Yukon in a deal valued at C$139.2 million.

  
  
• Eldorado Gold Corp.’s offer to purchase joint venture partner Brazauro Resources Corp. for C$122.5 million. The deal will expand Eldorado’s gold operations in Brazil and give the company control of the promising Tocantinzinho deposits.