Age of austerity nears an end as dealmaking picks up

LONDON • The popular refrain of resource executives in recent years of being “cautiously optimistic” may need to be revised.

In a week, Glencore Plc went further into Russian oil, a South African miner headed to Montana, BHP Billiton Ltd. bought into a Mexican deepwater oil and gas project and Rio Tinto Group said acquiring diamond assets is a priority.

It points to a growing sense of optimism from the world’s biggest mining companies given the speedy rebound in commodities. Acquisitions in the industry are picking up after being subdued for the past four years as companies emerge from a downturn that forced producers to shut mines, lay off workers, sell assets and halt dividends last year.

“We’re seeing the beginnings of an M&A cycle,” Jeremy Wrathall, the head of natural resources at Investec Plc in London, said by phone.

“There’s a renewed optimism and a renewed confidence that 12 months ago was unthinkable.”

The Bloomberg World Mining Index rallied 47 per cent this year as Chinese demand exceeded expectations and coal, zinc and iron ore surged.

That’s bolstered profits, giving companies more cash to return to shareholders and pay down debt.

Sibanye Gold Ltd. agreed to pay US$2.2 billion in cash to for Stillwater Mining Co., a U.S. producer of platinum and palladium.

The deal exceeds Sibanye’s market value and will be funded through a combination of bank loans and a share sale of at least US$750 million, according to a statement on Friday.

“There are clear signs that there’s been a change in the commodity markets with companies having delevered their balance sheets and there are significant price increases,” Sibanye chief executive officer Neal Froneman said by phone. “There probably is a new phase developing.”

China’s demand for raw materials, which underpinned growth in the mining industry since the 2000s, is robust.

Adding to the optimism, U.S. president-elect Donald Trump has pledged to spend US$1 trillion on infrastructure and promote domestic coal and steel.