5 minutos de lectura 19 nov 2019
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Mining and metals companies use M&A to accelerate growth agendas

Technology, convergence and new markets are key to M&A activity in mining and metals.

The 21st edition of the EY Global Capital Confidence Barometer indicates that 63% of mining and metals executives anticipate that the economy will have a positive impact on the sector in 2020. Strong earnings growth, combined with stronger balance sheets and reduced debt, supports their positive outlook for 2020. However, 45% of the executives expect an economic slowdown by 2021. As such, companies need to continuously evaluate portfolios, manage cash and consider divesting non-critical assets.

Despite concerns on environment-related policies and political uncertainty, demand for mineral growth from decarbonization will be a key growth driver for the mining and metals sector

The interconnected nature of the modern global economy presents many downside risks that mining executives are constantly monitoring. In line with findings in the Top 10 business risks and opportunities report — 2020, 17% of mining executives believe growth will also be impacted by geopolitical or local political uncertainty. US trade protection measures have disrupted trade and M&A activity in the metals sector. Meanwhile, 16% of respondents cite the focus on climate-change-related policies or reducing carbon footprints as a key barrier to growth. Mining companies have a significant role to play in reducing emissions, and key mining players have already introduced actionable targets. Companies also plan to increase production as they look to tap into demand for new-world commodities such as lithium, cobalt and nickel.

M&A survey mining and metals greatest external risks

Increasing production costs and slowing demand are the key challenges to growth

Within their own organizations, 29% of mining respondents believe that slowing demand and increasing production costs are the key challenges for growth. Volatile raw material and energy prices are raising input costs, especially in a low-inflation environment. Mining companies are looking to contain costs and move into higher-margin businesses. As a result, they are more widely focusing on reducing costs through outsourcing and divestments. Thirty-eight percent of mining respondents are planning to divest non-core assets, while 35% are considering outsourcing their back-office functions. 

M&A survey mining and metals most significant challenge

Technology, convergence and new markets are key to M&A activity 

Global M&A deal volume increased by 17% year over year to 155 deals in 3Q19. At the same time, values declined by 9.7% year over year to US$16.7b. Mining companies are choosing to acquire capabilities that will augment and accelerate their own growth agendas. 

Mining companies are starting to invest in new markets, such as battery minerals. Lithium deal values in the first nine months of 2019 reached US$905m, up from US$200m in the first half of 2019. There has also been increasing M&A activity in the original equipment manufacturer (OEM) space to cater to mining companies’ increasing focus on technology and innovation.

M&A survey mining and metals main acquisition drivers

Digital investments set to drive M&A activity 

Nearly one-third (32%) of survey respondents believe that automation and robotics will be the key technologies impacting mining businesses, followed by AI and machine learning (23%). Those who invest in technology, data analytics capabilities and operational transformation will have an edge over their competitors. We are seeing an increase in investment in digital and technology, with 61% of the survey respondents aiming to invest up to 24% of annual investment capital on digital and technology, and roughly 30% of respondents planning to invest 25%–49% of their capital, as compared to only 5% a year before.

Technology impact

32%

of mining executives believe that automation and robotics will be the key technologies impacting mining businesses.

Digital effectiveness is in the top three risks and opportunities for miners as it is the key to sustainable productivity and margin improvements, and getting it right will be a key differentiator. Miners need to understand how to better manage data, to extract maximum value. This is in line with the survey results, as 28% of the respondents believe that clearly defined strategic vision mapped to an understanding of digital needs will be a key element of executing digital strategy successfully. 

The unrelenting pace of innovation in technology is changing the buy-versus-build discussion. Companies need to understand the ecosystem of their industry landscape to determine their best route forward. Mining companies need to give up their addiction to intellectual property and really invest in collaboration through sharing data. And they may need to partner with others to offset cyber threats. While 42% of companies plan to invest in-house, only 19% are open to joint ventures and strategic alliances. Companies are also increasingly using corporate venture funds and external funds to invest across a range of new technologies. This offers more optionality and provides a range of potential digital futures.

M&A survey mining and metals how investing in digital and tech assets

Hiring or retaining skilled labor a key challenge for mining executives 

As digital and technology evolve across the mining value chain, a long-term perspective on the “future of work” is essential. Companies will need to avoid making short-term decisions that seem necessary in the moment but limit longer-term optionality and viability. While companies have KPIs to evaluate financial and customer value, more than 50% of the respondents are yet to adopt KPIs for talent and social value evaluation. There has been a year-over-year decline in mining-related skills in university enrollments, and attracting graduates to the sector is becoming a real concern. In addition, 27% of the survey respondents say that they find it challenging to retain or hire staff at all levels. The sector, therefore, needs a road map for new skills and occupations and should collaborate with universities to make the curriculum and courses future focused. 

M&A survey mining and metals difficulties hiring or retaining staff

While capital raising remains slow, mining executives believe private capital will outbid corporate buyers for assets over the next 12 months

Capital raised by mining companies remained largely stable at US$202.9b in 3Q19 as investors become increasingly cautious of investing in mining companies. There are several factors, including transparency, stage of project development, commodity pricing cycle and geographical considerations, that investors evaluate before capital allocation. License to operate is 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. Capital, however, is available for good-quality assets. 

Mining companies need to think more broadly about how to maximize their returns and adopt new approaches that may be radically different from those of the past. Mining companies will also need to re-evaluate their appetite for risk to make sure they are not missing out on new opportunities by taking a complacent or old-fashioned approach to allocating capital.

Resumen

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.