- Deal value up 51% in 2018 to reach $77.8b, highest in five years
- Maintaining capital discipline remained strong in mining companies agenda
- Gold to lend most glitter to deal activity in 2019
Global mining and metals deal value rose 51% year-on-year to US$77.8b in 2018 – and continued momentum suggests that 2019 will be the fourth consecutive growth in deal value – according to EY M&A and capital raising in mining and metals – 2019 outlook. While M&A activity is not yet back to the levels experienced in 2011, growth across all categories of deals (small, medium and large), indicates increased confidence for investment in the metals and mining sector. In 2018, capital discipline remained high on the agenda for companies as the top 100 companies returned over $60b to shareholders via dividends and share buybacks, more than the amount invested in M&A in the same year.
Lee Downham, EY Global Mining & Metals Transactions Leader, says:
“There appears little prospect of the sector losing its focus on the tight capital discipline that has recently defined the industry. However, investors are increasingly keen to see re-investment of capital and we believe that growth is back on the agenda. Ultimately, future returns will only be competitive in the long term if the right decisions over capital are made now.”
Outlook for 2019 –What can we expect
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.
Looking at the various commodities, it’s clear that the transformational gold transactions that have already been announced will result in further activity for the sector. Bulks are expected to be driven by some further ownership changes in the coal sector and iron ore pricing is likely to drive corporate activity on the back of the disruption currently experienced with Brazilian supply. And the continued roll out of battery technology will attract investment into the associated metals, particularly copper, which plays a critical role in the associated infrastructure.
From a geopolitical perspective, the sector has predominantly focused recent investment in low-risk geographies, such as Canada and Australia. 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 for deposits with the right profile.
Moving into 2019, social license to operate is becoming an increasingly important factor in assessing investments and in raising capital, as investors place increasing importance on contribution. Risks associated with environmental policies and safety will take a greater role in the diligence undertaken around capital investment decisions.
Downham says: “Looking ahead, we believe ethical investing will play a greater role in investment and portfolio decisions, as shareholders increasingly use their influence. As companies continue to shift from portfolio re-balancing and debt reduction toward growth financing, they will need to demonstrate the financial viability of a project while ensuring social LTO obligations are fully considered.”
Notes to Editors
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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.
EY takes a whole-of-value-chain approach to support each client to help seize the potential of digital to fast-track productivity, balance portfolios and set a clear road map for their new energy future.
For more information, please visit ey.com/miningmetals.
About the data
All mergers and acquisitions data, and capital raising data was extracted from Thomson ONE and analyzed by EY. Only completed deals are included in the data and analysis.