Greater mining and metals deal activity fails to drive Australian deal volume in 2016

Melbourne, Thursday 2 March 2017

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  • Australian mining deal value fell 73%, while deal volume rose 41% year-on-year
  • China more than doubled the value of domestic and cross-border acquisitions it made in 2016, accounting for 19% of global deal volume
  • Australian deal activity expected to increase in 2017, as outlook for clean coal continues to improve

Australian mining and metals deal value in 2016 fell 73% year-on-year to US$3.5b, according to the EY quarterly report Mergers, acquisitions and capital raising in the mining and metals sector. This drop in value was offset by a 31% increase in volume, with 96 deals struck in 2016, compared to 68 in 2015.

According to Paul Murphy, EY Oceania Mining & Metals Transactions Leader, the sluggish deal value was driven by a resurgence in the coal price, keeping sellers of high-quality assets holding out for stronger offers.

“There was a lack of large assets available in 2016, as sellers were wary to transact while the resurgent coal price was driving up values. However, with a number of coal assets already listed in 2017, we can expect to see this trend reversed as sellers seek to capitalise on regional demand for high quality Australian coal,” said Mr Murphy.

“Globally, the shift towards energy policy, driven by clean coal, is a positive sign for the owners of Australian assets, as this will continue to generate strong demand for high quality producers in the medium term.”

The value of deals in 2016 involving financial investors, including private equity, remained consistent with 2015, despite attractive valuations and a desire by many companies across the sector to divest at the start of 2016.

“Financial investors are partly filling the void left by reluctant public equity markets, a strong indicator that there are longer term returns and opportunities for owners of natural resource assets,” said Mr Murphy.

China returns to acquisitions

China more than doubled the value of domestic and cross-border acquisitions in 2016, accounting for 19% of global deal volume. Four of the top 10 deals in the sector were undertaken by Chinese acquirers, and the Asia-Pacific region accounted for 49% of global deal volume. China Molybdenum’s activities alone accounted for US$4.3b worth of acquisitions – just under 10% of the overall deal value in the sector.

In 2016, capital raised in China also doubled from the previous year, to US$100b, due to a significant rise in domestic corporate bond issues. This masked an overall decline across the sector globally, with Chinese bond activity driving a 9% increase in total capital raised, to US$249b. Excluding China, global capital raised declined by 16%, to US$149b.

“The Chinese market is maturing, moving from relatively indiscrete expansionary acquisitions, to activity driven by cost efficiency, vertical integration and portfolio optimisation,” said Mr Murphy.

“In 2016 this activity was concentrated on copper assets, with Chinese buyers seeking to shore up a more stable supply, despite record exports in the calendar year,” concluded Mr Murphy.

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Notes to Editors

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About the data

All mergers and acquisitions data, and capital raising data was extracted from Thomson ONE and analysed by EY. Only completed deals are included in the data and analysis.