M&A in mining & metals sector reaches highest point in 5 years

29 April 2019 Consultancy.com.au 3 min. read

Australia is becoming an increasingly popular destination for investment in the global mining & metals sector, which has been expanding throughout the course of last year. Most of the growth has come in the form of merger & acquisition (M&A) activity, which was steadily on the rise.

Big Four accounting and advisory firm EY has released numbers on the global mining & metals sector, which display such steady growth. As per the firm, a spike in M&A activity is a promising sign, representing a shift of sorts from several years of conservative spending in the sector.

Global oil and commodity prices took a tumble in 2014, which sent the global mining industry into a period of timid activity. However, deal volumes appear to be back on the rise, although this activity is concentrated among some commodities and is yet to spread to the others.

M&A Value & Volume (2011-2018)

“M&A deal value was up by 51% year-on-year to US$77.8 billion, the highest recorded deal value in the last five years,” says EY, indicating that a significant shift appears to have taken place. In 2013, the number of deals stood in excess of 600, generating a total value of more than $120 billion.

Since then, deal values stood consistently below the $60 billion mark, more than halving in a matter of months. Last year, deal volume registered a minor spike, but the value of the transactions took the overall deal value to more than $80 billion. Most of this activity, as per the firm, has been inward looking.

While the number of domestic deals has largely exceeded the number of cross-border deals – with the exception of 2014 – the share of cross-border deal had registered a minor spike between 2016 and 2017. Nevertheless, the share of domestic deals last year had returned to a higher portion than ever.

Cross-border share of deal value (%)

According to EY, the handful of cross-border deals is likely to be concentrated in low-risk markets, which include Canada and Australia. Overall, the increase in the deal volume and value is expected to continue over the course of this year, alongside more organic developments in the sector.

“There appears little prospect of the sector losing its focus on the tight capital discipline that has recently defined the industry. However, investors are increasingly keen to see re-investment of capital and we believe that growth is back on the agenda. Ultimately, future returns will only be competitive in the long term if the right decisions over capital are made now,” comments Lee Downham, EY Global Mining & Metals Transactions Leader.

Growth over 2019 is likely to be driven by major restructuring deals that have taken place this year, particularly in the gold and coal sectors. Copper, meanwhile, is likely to increase in demand on the back of the global shift towards battery-sourced energy, for which copper is an essential component.