The company’s chief executive Mick Davis’ revelation that the perception of the company as “deal junkies” will wane as the company shifts its emphasis “to a phase more dominated by organic growth”.

The shock announcement coincides with Davis’ predictions that “the supply of many commodities will struggle to keep pace with demand growth”.

This is a complete u-turn on the company’s attitude to growth in recent years. It has grown rapidly since it floated in 2002, acquiring 13 companies and shifting frombeing a AUD$3.6 billion business to one worth $44.2 billion.

“Our businesses’ rapid and comprehensive response to the downturn in the early part of the year enabled a creditable result in extremely challenging markets in 2009,” he said.

For lawyers riding high on deals like those presented by Xstrata in recent years, the obvious question is whether yesterday’s announcement is a sign of things to come in the M&A and resources market.

Davis said yesterday he thinks the medium-term outlook for commodity demand remains very promising, driven by the ongoing urbanisation and industrialisation of high-growth, populous economies, with China and other industrialising countries taking active steps to rebalance their economies towards domestic consumption-led growth over the next decade.

But he said many ofthe short- and medium-term leading indicators the company monitors are showingsigns of recovery, notwithstanding the fact that credit expansion in OECD economies remains “sluggish”.

Minter Ellison partner James Philips, who heads the firm’s mergers and acquisitions practice in Sydney, told The New Lawyer that many companies are now engaging with thereality that there will be aspects of the recovery that are not business asusual.

This includes the constraints on growth presented by higher government debt and taxes in some countries, as well as an environment that is attuned to risk, he said.

For M&A lawyers, Xstrata’s announcement yesterday is a symptom that things are changing and the recovery will not be business as usual, Philips said.

"This is always an interesting time of year for M&A. We've had the usual flurryof 'this will be a great year for M&A' pieces [in the media],” said Philips. But, he said, people are now realising things will be different.

But M&A lawyers that have been enjoying a string of resources deals need not worry, said Philips. He highlights two core drivers that will present activity in M&A in the resources space.

This includes the need to replenish asset portfolios through exploration or acquisition, and continuing strong product demand from countries that are investing heavily in infrastructure, building and economic development. 

“Certainly, talking to clients in Beijing last week, for example, there is still strong interest in Australian assets. Picking the scale of activity in a short run period like the next six months is harder though, especially in view of the episodic nature of M&A.”