- Deal value decreased 9.5% while volume fell from 116 to 92 year-on-year in 2Q18
- Deal value for rare earth/lithium assets up by 22% year-on-year in 1H18
- Global aggregate capital raised declined by 3% to US$131b in 1H18
Global mining and metals deal value fell by 9.5% year-on-year in 2Q18, as the appetite for acquisitive growth remained muted, according to the findings of the latest EY quarterly Mergers, acquisitions and capital raising in mining and metals. While deal value in the first half of 2018 was up 36% year-on-year, this was largely due to the US$18b merger between PotashCorp and Agrium completed in 1Q18, which represented 45% of 1H18 deal value.
The findings indicates that companies in the sector remain cautious in their approach to dealmaking, although there are signs that companies are beginning to look toward measured growth through joint ventures and strategic partnerships.
Lee Downham, EY Global Mining & Metals Transactions Leader, says:
“Mining and metals companies remain conservative in their approach to deals, despite a return to stronger balance sheets. There is still significant caution being exercised in the allocation of capital to anything other than the most attractive and low-risk projects. Portfolio optimization remains a key focus, and investment into growing the pipeline of future production appears to be back on the agenda but not at the risk of stressing balance sheets. There is no sign that this caution will reverse as we see out 2018, and we anticipate this will be a year of expansion primarily through organic investment rather than one of seeking long-term acquisitive growth.”
Corporates increasingly drove the dealmaking agenda in the first half of 2018, reflected by a wider geographical spread of M&A beyond China, which has been the epicenter of mining M&A in recent quarters. China’s share of deal value fell from 16% at the end of 1Q18 to 14% (US$5.8b) overall in 1H18, while Canada (US$19.7b) and India (US$6.3b) collectively accounted for 64% of deal value during the first half of the year.
Adoption of battery technology spurs dealmaking
The findings indicate that despite sluggish M&A activity overall, battery metals deal activity has begun to accelerate. Deal value for rare earth/lithium assets was up 22% year-on-year in 1H18, as companies increasingly look to capitalize on the future demand for electric vehicles. Meanwhile, steel, coal and gold transactions continued to dominate, representing 62.5% of the deals in 2Q18.
Downham says: “Mining and metals companies are increasingly excited by the potential of minerals supply into battery technology, which may encourage acquisitions and investment into earlier-stage assets. To date, we haven’t seen many big players moving into this space, and it will be interesting to see whether companies will be bold enough to respond to the rise in adoption of battery technology.”
Capital discipline continues across the sector
With businesses maintaining their focus on short-term projects, capital-raising activity remained slow during 2Q18. Global aggregate capital raised decreased by 3% to US$131b in 1H18, while 2Q18 volume was just 6% higher than the previous quarter, at 651 deals.
Debt proceeds remained unchanged year-on-year in 1H18 at US$122b, but equity proceeds fell by 29% — primarily due to a fall in the number of IPOs to just 7 in 2Q18, the fewest listed since 4Q16.
Downham says: “Balance sheets are typically well capitalized across the sector, but continued capital discipline has resulted in companies focusing on optionality across existing projects and delaying execution of higher-risk capital investments. This is not a long-term sustainable strategy across the industry, and we expect supply deficits to reignite capital-raising activity into 2019. In this ever-changing landscape, doing nothing is not an option.”
For more information, please visit ey.com/miningmetals.
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How EY’s Global Mining & Metals Network can help your business
The sector is returning to growth, but mining and metals (M&M) companies face a transformed competitive and operating landscape. The need to improve shareholder returns will drive bold strategies to accelerate productivity, improve margins and better allocate capital to achieve long-term growth. Digital innovation will be a key enabler but the industry must overcome a poor track record of technology implementations. If M&M companies are to survive and thrive in a new energy world, they must embrace digital to optimize productivity from market to mine.
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About the data
All data on mergers and acquisitions, and capital raising was extracted from Thomson ONE and analyzed by EY teams. Only completed deals are included in the data and analysis.