Global Min­ing deals val­ued at $51bn in 2017 – Ernst & Young

Zambian Business Times - - FRONT PAGE -

While the num­ber of merger and ac­qui­si­tion (M&A) deals fell by 6% in 2017, the value of trans­ac­tions rose by 15%, to $51-bil­lion, mark­ing the high­est value of deals since 2013. Ad­vi­sory firm Ernst & Young (EY) on Friday 27 April re­ported that key driv­ers of M&A ac­tiv­ity con­tin­ued to shift from di­vest­ments for debt re­duc­tion pur­poses to con­sol­i­da­tion and strate­gic ac­qui­si­tions. Around 87% of trans­ac­tions by value were driven by in­dus­try buy­ers, high­light­ing the strate­gic na­ture of deals, EY said in its lat­est M&A out­look. “Debt re­struc­tur­ing con­tin­ued in some sec­tors and re­gions though as man­age­ment looked to op­ti­mise their cap­i­tal struc­tures af­ter emerg­ing from dis­tress,” EY global min­ing and met­als trans­ac­tion leader, and au­thor Lee Down­ham said. In ad­di­tion to potash and alu­minium, ac­tiv­ity in the gold and coal sec­tors re­mained buoy­ant, rep­re­sent­ing around 15% of deals value. The value of coal ac­qui­si­tions were up 156% on 2016 fig­ures, to $8.5-bil­lion, de­spite a 27% drop in vol­umes, with only 30 coal M&A ac­tiv­i­ties re­ported in 2017. The deals in­cluded a num­ber of ther­mal coal di­vest­ments from large pro­duc­ers, who were look­ing to re­duce ex­po­sure as the en­ergy mix moved to­wards re­new­ables, Down­ham said. Gold deals de­clined by 34% in value dur­ing 2017, to $7.3-bil­lion, but EY re­ported that the gold sec­tor saw at least four trans­ac­tions with deal value in ex­cess of $200-mil­lion. Down­ham noted that as­sets in low-risk ju­ris­dic­tions con­tin­ued to at­tract more at­ten­tion, with the no­table ex­cep­tion be­ing deals con­nected with com­modi­ties with lim­ited ge­o­graph­i­cal abun­dance, such as cobalt in the Demo­cratic Repub­lic of Congo (DRC). Over two-thirds of the trans­ac­tions by vol­ume were in Canada, Aus­tralia, China and South Africa, with China top­ping the charts as both buyer and tar­get. EY’s Asia Pa­cific min­ing trans­ac­tions leader, Paul Murphy noted that M&A trans­ac­tion value in Aus­tralia over the past quar­ter in­creased sig­nif­i­cantly from $439-mil­lion in the pre­vi­ous quar­ter, to $1.8-bil­lion. “The vol­ume of Aus­tralian min­ing and met­als trans­ac­tions rep­re­sents around one-third of global deals, demon­strat­ing the on­go­ing strength of the Aus­tralian mar­ket. Re­gion­ally, Asia-Pa­cific rep­re­sents about one-quar­ter of global deals by vol­ume, which is be­ing led by Aus­tralia,” Murphy said. Look­ing ahead, Down­ham ex­pected 2018 to be char­ac­terised by an in­crease in the vol­ume of M&A trans­ac­tions, sup­ported by in­vest­ment-led strate­gies as com­pa­nies di­ver­sify by both com­mod­ity and re­gion. “Some of this ac­tiv­ity will be to shape port­fo­lios for fu­ture growth and to sus­tain share­holder re­turns,” Down­ham said. With crit­i­cal min­er­als and bat­tery tech­nol­ogy be­ing high on the global agenda, deals in lithium, cop­per and cobalt were ex­pected to fea­ture high on the list of M&A ac­tiv­ity in 2018. Mean­while, Down­ham noted that cap­i­tal rais­ing was sub­dued dur­ing the first quar­ter of 2018. While pro­ceeds in­creased marginally by 1.2% quar­ter-on-quar­ter to $53-bil­lion, it rep­re­sented a 3.9% fall from the same pe­riod last year. Min­ing com­pa­nies also re­mained cau­tious about ex­pand­ing debt de­spite im­proved ac­cess to tra­di­tional fi­nanc­ing. “We an­tic­i­pate that ap­petite to raise more cap­i­tal will rise as strate­gies shift to growth. As in­vest­ment-led strate­gies con­tinue to gain mo­men­tum on the back of strength­en­ing bal­ance sheets, we ex­pect con­sol­ida­tive deals to drive an uptick in trans­ac­tions through the year,” Down­ham added.

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