By Alex MacDonald 
 

LONDON--Global mining and metals mergers and acquisitions activity picked up in the second quarter and is forecast to rise further, albeit at a slow but steady pace, in the second half of the year as miners begin to cautiously consider growth strategies.

Global mining and metals deals by value rose 18% to $21.4 billion in the second quarter of this year compared with the previous quarter, said consultancy and accounting firm Ernst & Young in a report Wednesday. The figure includes BHP Billiton Ltd.'s (BHP) $8.7 billion demerger of the South32 Ltd. (S32.AU) unit. Excluding the spinoff, deal value would have only risen 13% on quarter.

Meanwhile deal volume rose 2% on quarter to 86 deals in the second quarter.

"With weak commodity prices putting pressure on margins, earnings and debt serviceability, the sector continues to be cautious against countercyclical investment," said Lee Downham, E&Y Global Mining & Metals Transactions Leader.

Mr. Downham said there are limited signs of strategic buying emerging at the lower to mid range of the market, which suggests some miners may be positioning themselves for the next round of growth. Ernst & Young expects a slate of high-value deals could close in the second half, including Potash Corp. of Saskatchewan Inc.'s (POT.T) $9 billion takeover of German potash and salt producer K+S AG (KPLUF) as well as base metal miner Independence Group NL's (IGO.AU)$1.3 billion takeover of Sirius Resources NL (SIR.AU).

There were 25 gold deals in the second quarter, making it the most highly sought after commodity, accounting for 29% of the total deal volume during the period. Ernst & Young said pure gold-play companies continue to eye purchases and tie-ups in order to position themselves for profit growth in a lower-gold price environment.

Excluding the BHP Billiton demerger of South32, coal accounted for 43% of total deals by value in the quarter, trumping gold. However, this included two megadeals, with the vast majority of M&A being low-value deals reflecting the distress in the sector, the consultancy firm said.

On the financing front, Ernst & Young said that the global mining and metals industry raised $138.4 billion in funds from debt and equity markets during the first half of the year compared with the same period a year earlier.

Intial public offerings by value dropped a whopping 71% to $335 million in the first half of this year comared with same period a year before as the number of IPOs dropped to 6 from eight over the same period. Follow-on share issues, however, nearly doubled to $20.5 billion from $10.4 billion in the same period as access to loans dried up, falling by a third to $64 billion.

The amount of corporate debt rose 52% on year to $52.6 billion in the first half, with 40% of that amount raised by coal miners alone.

Write to Alex MacDonald at alex.macdonald@wsj.com

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