In the first half of 2012, global merger and acquisition activity fell more than 30 per cent and, excluding the Glencore and Xstrata merger, the value of transactions dropped to $25 billion, one-third of the 2011 first half-year total, according to a report from PricewaterhouseCoopers.
Jock O'Callaghan, PwC's Australian energy, utilities and mining leader, said domestic activity mirrored the global themes, but it was likely to be felt more acutely here given the importance of the sector to the nation's economy.
"We are still an attractive destination for investment, but there are fewer enthusiastic and well equipped buyers," he said.
"When you add in all the other factors, deals are getting harder to do and we don't think there is much on the horizon that is going to shift that sentiment to make deals easier to do."
He said while there were a lot of "bargain hunters" in the market looking for a cheap deal, he did not think there were a lot of keen sellers locally.
"The short-term outlook will have a big impact on sentiment and equity values, but that doesn't equate to long-term views on value," he said.
"The bargain hunters can often be disappointed."
Mr O'Callaghan said that two to five years ago, companies were focused on getting bigger and better, but now they were "battening down the hatches". The focus was on operating expenditure and productivity.
"It would take a lot of courage for buyers to go out with a company-defining transaction given the uncertain sentiment around prices and costs," he said.
"No matter how compelling strategically a transaction may be, it is very hard to convince the board and the market the merits of doing a deal right now."
The report found there were 940 transactions recorded in the first half of 2012, compared to 1371 for the same period in 2011, which was the busiest half year for deals in the mining sector's history.
"Volatile capital markets and global economic uncertainty are to blame for this significant drop in activity," the report concluded.
Mr O'Callaghan said that, from a buyer's perspective, there were very few companies who were well equipped with the financial horsepower to do deals quickly.
"As we have seen, when deals are done with a long gestation period many things can shift dramatically and the value equation can shift," he said.
"Very few can go out and cut a cheque and make a deal happen."
The report found that all signs point to a slow second half of 2012 for M&A in the global mining sector and another mega deal is unlikely given market fears.
Mr O'Callaghan said the most important indicator of transaction sentiment was the middle-sized deals. The mid-sized deals were a sign of a very confident market.
He said the market was void of such deals and that, while there were likely to be some potential sellers under pressure to perform, it would not drive deal activity in the second half of this year.
"If you are sitting as a seller under some pressure, you'd rather try and ride out this part of the cycle than give away the crown jewels," he said. "Those that are under some pressure to do something in Australia are a small number and that adds to our feeling that there is not going to be any deals of any real magnitude done."
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