PERTH (miningweekly.com) – Deal activity in the global mining and metals sector was expected to trend upward in the second half of 2015, albeit at a slow and steady pace, advisory firm EY reported on Wednesday.

In its latest quarterly analysis ‘Mergers, Acquisitions and Capital Raising in Mining and Metals’, EY noted that deal volumes in the quarter ended June 30, increased by only 2% quarter-on-quarter to 86 deals.

Deal value for the first half of 2015 increased by 18% year-on-year to $21.4-billion, including the $8.7-billion demerger of South32 from mining giant BHP Billiton.

Excluding the demerger, deal values for the first half of 2015 were 30% lower than the first half of 2014, with volumes also dropping 43% to 170 deals.

EY noted that nearly 80% of the deals undertaken in the first half of the year were valued at less than $50-million and comprised a mere 5% of the total deal value for the year so far.

Quarter-on-quarter, there was a slight increase in deal volumes of 2%, to 86 deals, while value increased by 13%, even when excluding the South32 demerger.

China was identified as the most targeted country in terms of deal value, with some $2.2-billion worth of investments taking place in the country during the quarter, narrowly ahead of the US, which reached $2.1-billion.

EY noted that investors also continued to be risk averse when it came to exploring regions outside of their familiar territories, with 90% of deal value and 76% of deal volumes targeting assets within the acquirer’s region.

More than half of the deals undertaken so far in the first half of 2015 were targeted in Canada, the US and Australia.

“With weak commodity prices putting pressure on margins, earnings and debt serviceability, the sector continues to be cautious against countercyclical investment. The lack of momentum, mainly on the buy side, continues to be an issue in executing deals,” said EY global mining and metals transaction leader Lee Downham.

“We are seeing limited signs of strategic buying emerging at the mid- and lower end of the market, which suggests some are thinking ahead and positioning themselves for the next round of growth.”

Gold accounted for 29% of all deals by volume in the second quarter and there continued to be more activity between gold pure-play companies seeking partnerships to position for growth and leverage synergies to advance projects.

Excluding the BHP Billiton demerger of South32, coal accounted for 43% of deals by value in the quarter; however, Downham said this included two megadeals, with the vast majority of merger and acquisition activity being low-value deals reflecting the distress in the sector.

“Several coal and gold assets that have been marked for divestment by the multi-asset producers await completion or remain without buyers, so we expect further deals in these commodities in the remainder of 2015.

“Base metals are touted as the most attractive acquisition targets in the short term due to favourable supply-demand economics and we expect deal activity to increasingly reflect this.”

Meanwhile, EY estimated that equity raising would continue to remain difficult in the foreseeable future, with companies raising capital opportunistically.

On the debt side, yield-seeking would continue to quell wary and patient investors and serve an important fundraising function for midtier and junior miners, the firm said.