New age of deal making
• Commodity prices create room for investor interest to flourish
Conversations in the corridors of the Cape Town ICC this year may contain a degree of greater urgency. This may not have been the expectation even three months ago when SA was still caught in what looked like a death spiral.
Cyril Ramaphosa’s victory at December’s ANC elective conference has introduced a palpable expectation of improved regulatory and policy clarity, and a growing economy. And that air of expectation will undoubtedly act as a catalyst for deal making at the Investing in African Mining Indaba.
This would be in stark contrast to mining merger and acquisition activity in 2017, which was half of the previous year. According to law firm Baker McKenzie, this year is expected to improve on that, although deal value in 2019 could still be less than a third of the levels seen in 2015.
“SA has been very slow and sluggish from a mergers and acquisitions (M&A) perspective. But production is looking okay, and showing a slight increase,” says Morne van der Merwe, who heads up the firm’s corporate and M&A practice.
“There are obvious reasons why we’re not seeing the type of M&A activity we saw in this market 10 years ago. Insofar as 2018 is concerned, I think it would be safe to say that we should have an outcome which will create more certainty for investors around exactly what is required from a regulatory compliance point of view.”
Cyril Ramaphosa’s eagerness to start instituting change was evident in the weeks following his election. Moves to remove President Jacob Zuma and crackdowns on some of his closest lieutenants showed the ANC’s new boss means business.
Kevin Cron, director at Norton Rose Fulbright, described the situation by midJanuary as still being on a knife’s edge. “It’s still early days, and obviously the closer we get to the 2019 elections, if there’s a lapsing back into populist rhetoric and policy statements, it could damage confidence again,” he said. “Things are looking more positive than they did this time last year and there are some signs of life and hope.”
Cron’s colleague Georg Kahle, who heads the firm’s local mining practice, believes current commodity prices create room for investor interest to flourish. This is especially true of resources used in the renewable energy and electric vehicle markets, which have an increasing need for minerals abundant in SA.
“Lithium, graphite, nickel and copper will all, in our view, play an important role for the next 12 to 18 months as battery technology gets better and impetus through electric vehicle production,” Kahle says.
“Then, the platinum price is likely to increase because there is a technology using platinum fuel cells. So we foresee there will be some activity there.”
Van der Merwe says the demand for these minerals is definitely stimulating increased interest across the continent.
“Traditionally it’s been coal, gold, diamonds and manganese, and there is still interest in these minerals. But all of a sudden we’re looking at this new demand. Business leader Ivan Glasenberg of Glencore believes electric vehicles will be disruptive. The question is what will power those vehicles — batteries, ‘requiring battery minerals’ or hydrogen fuel-cell technology, requiring platinum?
“The impact of technology and the demand for commodities in the production and use of that technology is going to be informative.”
Kahle says we should not lose sight of the opportunity for deals in mining staples such as coal. Anglo American, for instance, is completing its disposal of coal assets as part of its strategy to reduce debt and focus mainly on platinum, diamonds, copper and some bulk commodities such as metallurgical coal and iron ore.
It remains to be seen what kind of an M&A year 2018 turns out to be, but the early signs definitely offer hope that the base is being laid for the future investment that the industry so badly needs.