PERTH (miningweekly.com) – Excluding the mega merger of GlencoreXstrata, deal value and volume in the mining sector contracted significantly in the first nine months of 2013, as sellers are in no rush and buyers remain cautious.

A total of 165 deals were completed in the third quarter, with a total value of $8-billion. For the nine months between January and September 2013, there were 537 deals worth $96.9-billion.

Excluding the $37.4-billion GlencoreXstrata mega deal, total deal value was $59.5-billion in the first nine months, a 22% decline on the same period in 2012 and a 24% decline on deal volume, Ernst & Young reported on Wednesday.

“Sellers do not need to sell urgently and buyers remain cautious, creating significant deal inertia,” said global mining and metals transaction leader Lee Downham.

However, he noted that private capital interest in the sector continues to grow, with financial investors taking an increased share of total deal value – 18% when excluding GlencoreXstrata, compared with 5% in 2012.

“The push by private capital into the mining sector is gathering momentum. While it’s only just beginning to be evident in deal numbers, perhaps more telling are the regular announcements by funds that capital has been secured. We will increasingly see the deployment of this capital over the next couple of years,” he added.

Downham noted that much of the mining and metals sector remained cautious and introspective, and this was reflected in the low risk and predominantly domestic nature of deals being done.

“Companies are transacting for synergies and margin to improve the bottom line, rather than growth of the business. It is a very risk-averse transacting environment.”

Unsurprisingly, overall capital raised by the sector in the third quarter was also subdued, falling to $39-billion from $78-billion in the second quarter.

Overall proceeds raised between January and September 2013 increased by 10% year-on-year to $206-billion, largely owing to some significant debt refinancing by the majors in the first half of the year.

However, Downham noted that the volume of issues declined to 1 772, a year-on-year drop of 11% compared with the same period in 2012.

“Equity markets remain challenging, with junior follow-on proceeds and IPO [initial public offering] volumes remaining at historic lows. This continues to create opportunities for alternative finance and private capital providers,” said Downham.

Meanwhile, junior miners remained focused on cash conservation, with some experiencing financial distress.

“There seems to be an increasing number of capital providers available to the sector, and the different forms of capital have evolved, but capital is still only being attracted to the very best projects,” Downham added.

He said that juniors were looking to hold on until the market improves, relying on highly dilutive convertible bonds or high interest loans. Both the total value and volume of follow-on issues by explorers increased slightly in the third quarter, but average proceeds fell further, to just $2-million.