Australia leads growth in global mining deals: EY

The number of mining deals involving Australia has risen significantly, Ernst & Young’s (EY) third quarter global mining and metals mergers and acquisitions (M&A) activity report shows.

With focus on gold and lithium, Australia is leading the way in a revival in global deal volumes, with an 86 per cent increase compared to the same period last year, according to EY’s Mining through the cycle: exchange performance comparison report. Australia, with Canada and China, was a top three country as both an acquirer and target destination for mining deals.

Global M&A activity was buoyant during the third quarter, continuing a steady increase, with deal volumes up by 12 per cent from the previous quarter to 121 deals, EY added.

While volumes may have been higher, global deal value decreased by 40 per cent during the period. However, EY Asia-Pacific mining & metals transactions leader Paul Murphy said the robust M&A deal volumes indicated that many in the sector were regaining confidence following a sustained period of lower commodity pricing, which had resulted in more deals being completed.

“Although far off the peak of the super cycle, the stabilisation of commodity prices has meant people have more trust in the price assumptions that are critical for valuing potential acquisitions. More recently pressure has eased off sellers with excess cash being utilised for debt reductions,” Murphy said.

Notable deals completed in Australia during the quarter included Evolution Mining’s $880 million acquisition of a stake in the Ernest Henry copper-gold mine in Queensland, and Glencore’s sale of its rail assets in the Hunter Valley for $1.14 billion.

“Many of the deals being structured still have an upside for the seller in the event prices move higher. For example, the Australian coal deals are being driven by the nation’s position as a high-quality producer as countries continue to focus on coal quality,” Murphy said.

“Efforts to reduce capital expenditure, cut costs and divest non-core assets continue to improve mining and metals companies’ financial position. As the sector becomes increasingly adept at managing volatility, we will see corporates begin to consider strategies that are more focused on future growth.”

Globally, China was the highest value dealmaker in the third quarter – the target of US$2.4 billion in transactions and the acquirer of US$3.8 billion in deals, which represented 29 per cent and 48 per cent of global totals respectively.

Capital raised in the global mining industry was also significantly higher, with value rising 53 per cent and volumes up 60 per cent compared with the same quarter in 2015.

Murphy expects continued growth in M&A deals in the next year, especially given commodity prices have recently moved higher.

“Buyers are unlikely to be paying full value for these higher commodity prices at the moment, however if they remain higher for a period of time, it could provide an opportunity for miners to de-risk their portfolios by bringing in new investors. We are seeing many key investors currently willing to take minority stakes in high quality mines,” Murphy concluded.