Does tomorrow’s success depend on being bold today? Does tomorrow’s success depend on being bold today?

By Lee Downham

EY Global Mining & Metals Strategy and Transactions Leader

Advising on transactions for EY Mining and Metals clients since 2004. Focused on buy-side and sell-side due diligence and public market listings.

3 minute read 3 Apr 2019
Related topics Mining and metals

M&A and capital raising in mining and metals – themes and outlook.

This year is already shaping up to be an interesting year for M&A, with the gold sector making transformative deals that will significantly re-shape the portfolios of the largest market participants, and almost certainly have a ripple effect through the entire gold sector.

While this M&A activity hasn’t yet spread beyond the gold sector, it certainly adds weight to the argument that investors are increasingly keen to see re-investment of capital and that growth is back on the agenda after many years of conserving capital.

Future returns will only be competitive in the long term if the right decisions over capital are made now. To truly transform portfolios, and provide market-leading shareholder returns, the mining and metals sector must look across all strands of capital allocation, and this may need to consider the scale of investment into transformative technologies.

Buy: only if the price is right

Early signs suggest that 2019 will represent a fourth year of consecutive growth in deal value. While M&A activity is not yet back to the levels experienced in 2011, there is growth across all categories of dealmaking (small, medium and large), indicating increased confidence for investment in the sector. The signs are that capital is once again available for the right opportunities.

Build: brownfield rather than grass roots

While the current market appears relatively well balanced, there are looming supply constraints in certain commodities as project pipelines have shrunk significantly due to a prolonged period of capital discipline. There is the continued lack of investor appetite for early stage funding. The limited pipeline of bankable projects of scale, comes during a time when there is significant buyer appetite for quality projects, providing more reason for the muted M&A market.

Return: the shareholder remains king

Strong operating cashflows, coupled with exceptional divestment proceeds for many, has enabled the sector to initiate significant share buyback programs to boost shareholder returns and repurchase equity considered to be trading below full potential. These buybacks have enabled many companies in the sector to create higher shareholder returns than would otherwise be the case from underlying equity price appreciation.

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Transform (invest): innovate to stay ahead

Those who invest in technology, data analytics capabilities and operational transformation will have an edge over their competitors. According to the respondents of our Business risks facing mining and metals in 2019-2020 survey, the majority of miners are investing 5% or less of their capital expenditure in digital technologies. How much more could they be optimizing and transforming their operations if they invested up to 20% of their capex budgets in digital and put capital at risk? This increased investment could be disruptive to the way mining and metals organizations operate, giving a distinct competitive advantage to early adopters.

What to expect in 2019?


M&A activity will continue to grow through 2019 on the back of a steady period of growth in deal value over the last three years and a general belief that the sector cannot continue to return cash and sell off assets — deals will continue to shift from being divestment-led to investment-led with a focus on replenishing portfolio growth options. Premium valuations may be on the return for world-class assets after a sustained period of risk-averse valuations.

Commodities — We expect to see significant consolidation in the gold sector. We also expect bulks to be relatively busy with some further ownership changes in the coal sector and iron ore pricing to drive corporate activity on the back of the disruption currently experienced with Brazilian supply. Copper will remain a key focus for M&A and arguably the most strategic M&A driver, but with limited options available, copper deals may need significant premiums to get over the line.

Geopolitical influence — The sector has predominantly focused investment in low-risk geographies, such as Canada and Australia, and we expect this to continue. However, as investors look to secure long-term growth options, we will increasingly see deals in countries that are perceived to have higher risk profiles where the deposit represents a world-class asset with scale.

License to operate (LTO) — As the number one risk in the mining and metals sector, this will remain front of mind when performing due diligence on potential acquisition targets or investing in new projects. Any investment will be predicated on a well-defined strategy on working with local governments and communities to ensure the project has the full support and cooperation of those impacted by it.

Capital raising

Balance sheets have been strengthened over recent years, and increased flexibility introduced through refinancing of short-term maturities into longer-dated instruments. Free cash flow projections look strong in the short to medium term due to limited new supply, and that is providing the sector with an opportunity to manage investment capital in such a way that avoids financial risk being reintroduced. For many participants, that translates into a policy of only reinvesting capital generated from existing operations. For others, there is capacity to introduce additional debt or bring in a strategic JV partner.

Type of financing — An increasingly important factor in capital raising will be the concept of social license to operate, which investors see as a key risk factor impacting the ability to raise capital. Risks associated with environmental policies and safety will take a greater role in the diligence undertaken around capital investment decisions.

Investment into new projects is on the rise. A number of acquisitions in 2018 were for early-stage projects, which suggests a need for capital raising over the short term in order to bring these projects into production. While we have seen many players opting for debt to fund projects, mining and metal companies are also looking to balance risk by opting for JV agreements with strategic players and resource funds.

However, capital allocation can be subjective (e.g., the relative risks of investing in coal vs. battery minerals) as mining and metals companies need to demonstrate the financial viability of a project while ensuring LTO obligations are fully embedded.

Notable transactions trends in 2018


M&A deal value was up by 51% y-o-y to US$77.8b, the highest recorded deal value in the last five years.

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Commodities diverged

  • Coal and steel deals accounted for 33% of total deal value, excluding the Nutrien deal. Coal deal value was up by 64% y-o-y to US$13.9b and volume was up 25% to 37 deals. While still significant, steel transactions value and volume declined by 12% y-o-y to US$11.8b and 37 deals.
  • Copper accounted for US$7.4b (up 142.5% y-o-y) of deal value on the back of a positive demand outlook for the metal, partly because of the expected ramp-up of infrastructure to support the shift to battery powered vehicles, and also a cut back in capital expenditure over recent years contributing to supply constraint.
  • Gold deal value declined by 11% y-o-y to US$6.5b as major producers focused on improving balance sheets, reducing debt and developing a current pipeline of projects.
  • Battery minerals deal activity has begun to accelerate. Deal value for rare earths and lithium more than doubled to US$1.2b in 2018, with companies increasingly seeking to capitalize on the future demand for batteries in electric vehicles. However, battery mineral prices have fallen, pressured by increased supply. This volatility in prices will likely deter significant investment into these commodities.

Cross-border share of deals declined amid political concerns

Cross-border share of deal value fell to 22.6% from 36.5% in 2017. As dealmakers deal with an increased level of political intervention and protectionism, M&A activity has predominantly been driven by domestic deals. China no longer dominated M&A activity, accounting for only 15% of the deal value, down from 27% in 2017. That activity has predominantly been driven by investments in low-risk geographies.

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Capital raising

In 2018, mining and metals companies continued to focus on maintaining capital discipline and making balance sheets as strong and agile as possible. Reflecting the moderate pick-up in M&A activity, capital raising activity remained quiet during 2018 as the ability to self-finance improved on the back of strong free cash generation.

Aggregate capital raised was up only 6% y-o-y to US$272.3b, even with access to capital significantly improving. That being said, capital raising transaction volumes in 2018 were 15.5% lower at 2,480, compared with 2,935 in 2017. The biggest movers were debt, which increased 13% y-o-y to US$254b, while equity proceeds fell by 46% to US$18b.


While not quite returning to 2013 and 2014 levels, loan proceeds increased for the second year in a row, growing by 18% y-o-y to US$133b.

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Bond proceeds increased 12% y-o-y to US$118.7b, after declining in 2017. The volume of bond transactions also increased by 18% y-o-y to 572.

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The IPO market witnessed increasing economic and political uncertainty, softening IPO confidence globally. That said, global proceeds stood at US$2.14b, which was still significantly higher than in previous years.

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Convertibles witnessed the largest drop in activity during 2018, with proceeds declining by 58% y-o-y to US$2.4b.

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Secondary listings declined 48% y-o-y to US$15.8b, after rising in 2017 to US$30.7b. Uncertainty related to escalating geopolitical tensions adversely impacted not only the value of capital raised by the sector, but also the number of placement offerings completed.

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To read the full report, download it here.


M&A activity is expected to continue to grow through 2019, following the trend over the last three years and a general belief that the sector cannot continue to return cash and sell off assets — deals will continue to shift from being divestment-led to investment-led with a focus on replenishing portfolio growth options.

About this article

By Lee Downham

EY Global Mining & Metals Strategy and Transactions Leader

Advising on transactions for EY Mining and Metals clients since 2004. Focused on buy-side and sell-side due diligence and public market listings.

Related topics Mining and metals