https://www.engineeringnews.co.za

Mining M&A hits 10-year low, deal activity likely to remain subdued

Mining M&A hits 10-year low, deal activity likely to remain subdued

Photo by Reuters

29th January 2015

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

Font size: - +

PERTH (miningweekly.com) – Transaction volumes in the mining and metals sector reached a 10-year low in 2014, with transactions driven by divestments and forced sales in the face of falling commodity prices and risk-averse capital markets.

It was fourth consecutive year of declining merger and acquisition (M&A) activity in the sector, with deal volumes down 23% year-on-year from 703 in 2013, to 544 in 2014, the lowest volume of deals since 2003, professional services firm EY said this week.

Overall deal value declined 49% year-on-year from $87.3-billion in 2013 (excluding the Glencore/Xstrata merger) to $44.6-billion in 2014, the lowest since 2004.

EY global mining and metals transactions leader Lee Downham pointed out that the number of megadeals, those worth more than $1-billion, dropped nearly 40%, from 18 in 2013 to just 11 in 2014.

Further highlighting the risk-averse nature of deals in 2014, 60% of deal volume and 51% of deal value targeted assets in developed regions, up from 54% and 42% respectively in 2013, excluding the Glencore/Xstrata merger.

A larger number of sub-$10-million deals indicated distress among juniors and opportunistic buyers entering the market, with 65% of deals below $10-million, Downham said.

Buyers came largely from within the sector during 2014, with 82% of deal value and 71% of deal volumes undertaken by industry acquirers.

Meanwhile, there was also a slight drop in the volume of acquisitions by financial investors, down from 23% in 2013, to 17% in 2014.

“There has been some criticism of private capital for not deploying capital in the early and middle parts of last year, but with the benefit of hindsight the patience in their deployment should pay off; the market softened a further 20% over the past year,” Downham added.

Total proceeds from capital raising across the mining and metals sector in 2014 were down 15% on 2013, falling from $272-billion to $230.8-billion. However, the headline number was misleading as most debt raised went into refinancing with little new equity coming into the sector during the year, Downham noted.

The number of issues was down 6%, from 2 617 in 2013 to 2 465 in 2014.

Downham added that while the probability of capital flooding back to the sector en masse in 2015 was low, it was likely that investment demand for quality growth opportunities in the sector would increase, spurred by the now three-year drought of large-scale M&A, persistently low equity valuations and the gradual impact of supply corrections on prices and outlook.

“The big question remains when, or if, the major producers will have the permission to capitalise on that demand with a return to building new capacity to ensure they capture the next growth cycle.”

Beyond the majors, capital raising for projects was complex and often required multiple funding sources.

“For advanced juniors and single-project developers, there are multiple options but each comes with its own challenges and the markets are particularly difficult right now. As a result, this part of the sector is stuck between a rock and a hard place – poorly considered financing strategies can be value destructive, but with no finance there will inevitably be growth stagnation.”

“The lack of risk capital available for junior explorers is having a significant impact on available funds for exploration, potentially setting up supply shortages in the next decade.”

Meanwhile, Downham noted that the market outlook for 2015 varied from commodity to commodity.

“While there is a sense that the mining and metals M&A market has hit its trough, deal activity is likely to remain subdued in the face of ongoing price volatility and capital discipline across the industry. Shareholders continue to cast a watchful eye over management’s investment activities, with many pushing for more cash to be returned via buybacks and progressive dividends.”

Downham noted that the pace of private capital investment had been considered, and that it had proven to be the right approach as share valuations continued to slide on the back of softening metal prices.

This investment should pick up once the price outlook stabilised and that would most likely trigger broader transaction activity.

“Distressed situations may drive opportunistic buying in certain commodities, but most industry acquisitions will be mergers between equals that provide synergies for both parties, or consolidation opportunities.”

EY expected to see more joint ventures emerge in 2015 - either as a way of sharing the costs and risk associated with accessing new markets, realising synergies, or among Asian acquirers, securing low-cost supply.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

Comments

Latest News

Magazine video image
Magazine round up | 29 March 2024
29th March 2024

Showroom

Rittal
Rittal

Rittal is a world leading provider of top-quality integrated systems for enclosures, power distribution, climate control, IT infrastructure and...

VISIT SHOWROOM 
Rentech
Rentech

Rentech provides renewable energy products and services to the local and selected African markets. Supplying inverters, lithium and lead-acid...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.074 0.124s - 156pq - 2rq
Subscribe Now