PERTH (miningweekly.com) – 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 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.