PERTH (miningweekly.com) – Despite mining executives being more optimistic about the global economy, merger and acquisition (M&A) appetite is expected to remain subdued, advisory firm Ernst & Young (E&Y) reported this week.

In its latest six-monthly Capital Confidence Barometer, E&Y noted that some 57% of mining and metals respondents considered the global economy to be improving, compared with just 21% in the October 2012 report.

The barometer further showed that growth was the main focus for some 44% of companies in the sector, up from the 38% six months before, while 46% of respondents viewed credit availability as improving, up from 30% in the previous report.

However, E&Y noted that, despite the more positive sentiment, M&A appetite remains subdued, with 24% of respondents planning to pursue an acquisition in the next 12 months, down from 28% in October.

The findings were consistent with the first-quarter M&A data for the sector globally, with total deal value down 45% year-on-year to $16.3-billion and deal volume down 35% to 168 deals.

E&Y predicted that, for those deals expected to be undertaken, smaller bolt-on deals were favoured, with 91% of deals expected to be below $500-million, up from 74% in October 2012, supporting management’s current preference for steady growth so as not to jeopardise balance sheet agility and to preserve credit ratings.

However, E&Y Oceania mining and metals transactions advisory leader Paul Murphy said those companies ignoring M&A may be missing out where valuations were depressed, providing potentially attractive returns on deals.

“The window for opportunistic acquisitions for those with access to capital is narrowing.”

“Investors are continuing to chase yield and minimise risk, which has skewed investor preferences towards high-yield debt and away from equities. However, as high-risk coupons decline, the attractiveness of equities relative to their risk improves, suggesting a move back to equities may be getting closer.”

Murphy noted that there was more confidence in the global economic outlook, that the syndicated bank loan market had picked up and that the market had already seen a move by financial investors into mining and metals assets, usually first movers.

“With the larger mining companies still going through portfolio reviews, it’s likely there will be opportunities in Australia for inbound investors and midtier miners.”

Murphy said that, while the funding situation for many exploration and development companies was dire, an opening in the initial public offering market in Australia by the end of the year was not out of the question.