GLOBAL CHINESE FINANCIAL FORUM SHANGHAI CONFERENCE 2009

GLOBAL CHINESE FINANCIAL FORUMSHANGHAI CONFERENCE 2009

Canadian Natural Resources M&A Environment

Trends and Outlook

Brian Imrie

Partner, KPMG Corporate Finance, Canada

2© 2009 KPMG, a Canadian limited liability partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative.All rights reserved. The KPMG logo and name are trademarks of KPMG International.


M&A Activity Overview Global M&A has fallen dramatically from the 2007

peak and activity has continued to decline in 2009

M&A activity has rebounded modestly in Canada in 2009

Canadian portion of global total is significant and has risen in recent years

Source: Bloomberg

Global M&A Activity - Annual - $B

$2,013

$2,608

$3,549

$4,050

$2,523

$1,399

2004 2005 2006 2007 2008 YTD 2009

Canadian M&A Activity - Annual - $B

$121

$179

$311

$359

$112$132

2004 2005 2006 2007 2008 YTD 2009

Canadian M&A Activity - % of Global

8.9%

4.4%

9.4%8.8%

6.0%

6.9%

2004 2005 2006 2007 2008 YTD 2009



Importance of Natural Resources in Canada Natural Resources are the leading components of Canadian equity markets and

M&A

Source: Standard and Poor’s (as at November 23, 2009)

Canadian M&A Market 2004-2009

Energy15%

Mining10%

Other75%

Canadian Equity Market (as at Sep 30, 2009)

Utilities, 1.5%Info Tech, 3.2%

Industrials, 5.5%

Telecom Services, 4.3%

Health Care, 0.5%

Financials, 30.6%

Consumer Staples, 2.7%

Consumer Discretionary, 4.2%

Energy, 27.2%

Mining/Materials, 20.4%



Natural Resources M&A 2004 - 2009 Mining M&A activity has declined since 2007 with fewer mega deals

Energy M&A activity has declined less

Source: MergerMarket

Mining M&A

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009

$ B

0

10

20

30

40

50

60

70

80

Units

Value of Deals ($) Number of Deals (Announced)

Energy M&A

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009

$ B

0

10

20

30

40

50

60

70

80

Units

Value of Deals ($) Number of Deals (Announced)



Premiums Paid Analysis The average premium paid in public natural resources takeovers in this period has

been 24.7%

The premium paid in the energy industry has been lower because of the greater number of “mergers of equals” with little or no premium, i.e. “at the market” transactions


Premiums Paid - Mining

30.6%

0%

10%

20%

30%

40%

50%

60%

2004 2005 2006 2007 2008 2009

Average Premium Paid Average premium paid for all deals

Premiums Paid - Energy

20.5%

0%

10%

20%

30%

40%

50%

60%

2004 2005 2006 2007 2008 2009

Average Premium Paid Average premium paid for all deals



Cross-Border Transactions Cross-border transactions continue to represent a majority of Canadian

M&A by Value

Significantly higher than US Market


Cross-Border as a % of M&A Transactions

58%

72%80%

61%

53%66%

71%

67%

76%

52%

37%

29%

24%

24%

23%

28%

43% 32%29%

29%

0%10%20%30%40%50%60%70%80%90%

2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD2009

Canada US



Importance of Foreign Acquirors of Natural Resources Companies


Non-Canadian acquirors play an important role in takeovers of Canadian natural resources companies

Proportion is higher for mining companies, given the more global nature of the assets and the high degree of consolidation activity in Western Canadian conventional oil and gas

Mining & Energy - Foreign Buyers

0%

10%

20%

30%

40%

50%

60%

2004 2005 2006 2007 2008 2009

% N

umbe

r of

Dea

ls

Mining Energy



Consideration Used in Acquisitions Cash is used to acquire natural resource companies in the majority of

transactions

However, acquirors regularly offer equity to target shareholders, or a combination of cash and equity


Consideration Used - Mining

43% 42%52% 53%

43%57%

43% 42%39% 35%

23%

35%

14% 17%9% 12%

33%

9%

2004 2005 2006 2007 2008 2009

% N

umbe

r of

Dea

ls

Cash Deals Equity Deals Combination Deals

Consideration Used - Energy

65% 58%40%

61% 62%50%

15% 25%

33%

24% 26%

30%

20% 17%27%

15% 12%20%

2004 2005 2006 2007 2008 2009

% N

umbe

r of

Dea

ls

Cash Deals Equity Deals Combination Deals



Notable Deals - Mining Decline in Canadian mining M&A values in 2009 has been driven by a reduced number of mega deals

Decline of commodity prices

Lower equity market values for acquirors

Reduced access to capital


2006 Barrick Gold/Placer Dome

Xstrata/Falconbridge

Vale/Inco

$10 B

$24 B

$18 B

2007 Rio Tinto/Alcan $44 B

2008 Teck Resources/Fording Canadian Coal Trust $14 B

2009 CIC/Teck (17% stake) $1.7B



Chinese Mining Acquisitions In the last several years, Chinese acquirors have been very active in Canada

Targets have been multiple minerals: nickel, coal, gold, zinc, copper

Exploration, development and production

100% ownership/minority control/portfolio investment

2009 Jilin Jien Nickel Industry/Canadian Royalties

CIC/Teck Resources (17% stake)

$137 MM

$1.7 B

2008 Jinduicheng Molybdenum/Yukon Zinc

China National Gold Corp/Jinshan Gold Mines (42% stake)

Jinchuan Group/Tyler Resources

China Minmetals & Jiangxi Copper/Northern Peru Copper

$120 MM

$200 mm

$175 MM

$410 mm




Notable Deals – Energy 2009 Energy has been the most active sector in Canadian M&A in 2009

Top 2 transactions and 5 of the top 10

Foreign companies have been active buyers

Ongoing domestic consolidation also

Top Energy Deals

Suncor Energy/Petro-Canada - $20 B

Sinopec/Addax Petroleum - $10 B

Korean National Oil/Harvest Energy Trust - $5 B

Petrobakken Energy/Tristar Oil & Gas - $3 B

Abu Dhabi Investment Authority/Nova Chemicals - $2 B




Chinese Energy Acquisitions Chinese acquirors have also been active in the mining sector

Greater focus historically on companies with large international reserves

2009 PetroChina/AOSC Oil Sands Project (60%)

Sinopec/Addax Petroleum

CNPC/Verenex Energy

$1.9 B

$10 B

$325 MM(pending)

2008 China Petroleum & Chemical/Tanganyika Oil

$1.8 B

2005 CNPC International/PetroKazakhstan

$3.9 B




Unsolicited or “Hostile” Bids in Canada Most public company takeovers in Canada are friendly, negotiated transactions

Exclusive negotiations with single buyer or a controlled auction of company

However, Canadian takeover regulations and practices make Canada one of the easiest jurisdictions globally to successfully launch an unsolicited or hostile takeover bid

Regulators in Canada want shareholders to decide on merits of a takeover bid

Majority of Canadian hostile transactions result in a change of control

Different from US “Just Say No” defence

Average ultimate takeover premium for hostile bids is 54%, well above average premium for negotiated deals

First Chinese hostile bid for Canadian company was successful in 2009

Jilin Jien Nickel Industry’s acquisition of Canadian Royalties



Canadian Hostile Transactions since 2005

Number of Deals:

Acquired by Initial Offeror 28

Remained Independent 6

Acquired by Interloper 10

Pending 7

Total 51

Pending7%

Acquired by Interloper

10%

Remained Independent

6%

Acquired by Initial Offeror28%



Foreign Acquisitions in Canada – Investment Canada Act Investment Canada Act applies to every acquisition of control of a Canadian business by a non-

Canadian

Only 1 transaction has been blocked in 25 years, excluding cultural industries

Proposed $1.3 B acquisition of MDA’s space division by US-based Alliant Techsystems

Changes to the ICA in 2009 significantly increased the threshold size under which reviews are not required

Deals will not be reviewed under $600 MM enterprise value Increasing to $800 MM in 2011 and $1 B in 2013

No longer any special review for uranium

However, new power to review transactions based on national security interests creates some uncertainty

Not expected to be used often



Source: Bloomberg

S&P/TSX Energy Index v Crude Oil

50

70

90

110

130

150

170

190

210

J ul-0

7

Sep-0

7

Nov-07

J an-08

Mar-

08

May

-08

J ul-0

8

Sep-0

8

Nov-08

J an-09

Mar-

09

May

-09

J ul-0

9

Sep-0

9

S&P/TSX Energy Index Crude Oil

S&P/TSX Global Mining Index v IMF World Non Fuel All Commodity

0

20

40

60

80

100

120

140

J ul-0

7

Sep-0

7

Nov-07

J an-08

Mar-

08

May

-08

J ul-0

8

Sep-0

8

Nov-08

J an-09

Mar-

09

May

-09

J ul-0

9

Sep-0

9

S&P TSX global mining index IMF World Non Fuel Commodities Index

S&P/TSX Global Gold Index v Gold

60

80

100

120

140

160

180

200

J ul-0

7

Sep-07

Nov-07

J an-08

Mar-08

May

-08

J ul-0

8

Sep-08

Nov-08

J an-09

Mar-09

May

-09

J ul-0

9

Sep-09

S&P/TSX Global Gold Index Gold



M&A Outlook – 2010 and Beyond Most markets have improved significantly in 2009

Prospect for global economy has improved

Commodity prices have strengthened

Equity markets have improved and reduction of volatility

Improved CEO and Board confidence

Improved Liquidity

Access to equity capital, particularly for senior and intermediate producers

Improved investment grade credit

Canadian Natural Resources M&A

Mining M&A activity will increase substantially in 2010; energy M&A will remain high

Increased competition for mega deals as seniors return to the game

Junior and intermediates, especially miners with development projects, will actively seek strategic partners and creative solutions

M&A

Minority investments

JV’s/project level investments

Offtakes


Questions/Discussion

Date post:	07-Jan-2016
Category:	Documents
Upload:	ronny
View:	17 times
Download:	1 times

GLOBAL CHINESE FINANCIAL FORUM SHANGHAI CONFERENCE 2009

Documents