Global mining deal value in 2016 dropped to lowest level since 2004 despite greater activity

2 mins read

The FINANCIAL — Global mining and metals deal volume fell 9% year-on-year to US$44.3b in 2016 – the lowest level since 2004, according to the EY quarterly report Mergers, acquisitions and capital raising in the mining and metals sector. Meanwhile, deal volume showed improvement from a low of 358 deals in 2015 to 477 in 2016 – a rise of 33%.

Lee Downham, EY Global Mining & Metals Transactions Leader, says:

“Ongoing volatility and an ever-changing macroeconomic environment made executing deals extremely difficult in the mining and metals sector in 2016. The level of divestments and assets listed at rock-bottom prices predicted at the outset of the year just didn’t materialize as the outlook improved so significantly through the course of the year.”

Strategic restructuring and sovereign security drove an increase in high-value transactions in the last quarter of the year, including the completion of Alcoa’s Arconic spin-off of its downstream operations and Freeport-McMoRan’s sale of its Tenke Fungurume mine. Together, these deals represent 14% (US$6b) of total deal value in 2016.

Divestment activity also helped a number of mid-tier mining companies to consolidate their positions this year, with Kinross Gold, Boliden and New Hope undertaking acquisitions of divested assets.

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

Buyers favor copper while coal sees drop-off

Copper assets comprised 3 of the top 10 deals for the year by value and 15% of total sector deal value. Strategic buyers took advantage of opportunities to secure offtake from world-class assets not typically available without distress in the sector.

See also  FDA bans Juul's vapes, pods citing 'conflicting' data on potentially harmful chemicals

At the other end of the spectrum, coal deal value dropped 39% year-on-year in 2016. Nearly all of the major diversified miners and largest energy pure-players successfully closed divestments of coal assets during the year, particularly in Australia and the US. Larger deals were pulled or took a long time to execute, however, given the price improvement toward the end of the year and the impact it had on valuations. More Australian coal assets up for sale and potential reforms in the US will likely continue to drive activity.

Downham says: “In 2016, we saw divergence between commodities that’s set to continue this year. There’s no one-size-fits-all strategy; companies must resist the herd mentality adopted during the peak of the super cycle and carve their own strategic path based on their portfolio. Investors need to consider the company and not just the sector broadly.”

China returns to acquisitions

China more than doubled the value of domestic and cross-border acquisitions it made in 2016. Four of the top 10 deals in the sector were undertaken by Chinese acquirers. 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 to US$100b from the previous year due to a significant rise in domestic corporate bond issues. This masked an overall decline in capital raised across the sector globally, with Chinese bond activity driving a 9% increase to US$249b in total capital raised (excluding China, global capital raised declined by 16% to US$149b).

See also  IRA-Approved Palladium Bars | 2022 Precious Metal/Gold Investing Guide Launched

Downham says: “The industry consensus is that commodity prices, generally, were at or near the bottom of the cycle in early 2016 and will remain above this level going forward, albeit significant volatility will remain. We expect a more positive industry outlook and access to capital to improve transaction activity this year. Companies must focus on their individual portfolios and the unique value they can provide to shareholders.”

 

Leave a Reply