In 2017, the value of...
The value of global mining and metals deals reached a four year high in 2017, a new report from Ernst& & Young has found.
In 2017, the value of deals in the mining and metals space reached a total high of $51bn which represents a 15% increase year-on-year from 2016.
In its quarterly report; Mergers, Acquisitions and capital raising in the mining and metals sector, EY found that financial stress had abated throughout the year due to improving market conditions.
Coal and steel were the key drivers of deal value in 2017, with coal acquisitions up 156% on 2016 to US$8.5b, and steel transactions doubling in value to US$13.3b. Meanwhile, gold deals declined, falling 34% in value to US$7.3b.
As the world turned more and more towards the development of electric vehicles, this saw a number of investors look to put their stock into the future supply of cobalt, lithium and other commodities used in batteries.
“In 2017, mining and metals companies came to an inflection point as financial distress abated and the sector began to cautiously move toward a more strategic mindset. We expect to see more deals in 2018 as investment-led strategies begin to dominate, but the return of transformational consolidation across the industry is unlikely as capital discipline is maintained,” said Lee Downham, EY Global Mining & Metals Transactions Leader.
North America proved to be one of the larger contributors to the rise in deal value, representing around 32% of global deal value (US$16.2b) as either a target or acquirer, totalling 118 deals.
But, and it comes as no real surprise, China was the main hub of activity in 2017, leading deals by value as both acquirer (US$18.7b, representing 36.6%) and target (US$13.6b, representing 26.6%).
The majority of China deals were domestic steel and aluminium mergers, aimed at industry consolidation to drive efficiency across the metals sector.
China was responsible for just under a third (32%) of global capital raised across the industry, which is a notable decrease of 40% on last year.
In 2017, global aggregate capital raised increased by just 3% year-on-year as companies continued to control expenditure on growth projects and sustain capital.
“Despite improved access to capital in 2017, the focus has largely been on meeting short-term needs, such as working capital and refinancing requirements. A shift away from debt reduction and toward creating sustainable shareholder value should now trigger stronger demand for growth financing. With a strong commodity outlook, we expect mining companies to return to acquisitive growth in the year ahead.”