Global mining and metals deal appetite remained subdued in the third quarter amid ongoing geopolitical uncertainty, advisory firm EY notes in its latest ‘Mergers, Acquisitions and Capital Raising’ report.
However, EY’s global capital confidence barometer (CCB) survey indicated the sector could be poised for a rebound.
EY said 58% of global mining executive respondents intend to pursue mergers and acquisitions (M&A) in the next 12 months, compared with 46% across all measured sectors.
While third-quarter deal value rose by 25% quarter-on-quarter to $16.8-billion, and volume was up 15% (115 deals), caution prevailed as mining companies continued to focus on balance sheet stability and returning cash to shareholders.
This was reflected by a decline in capital raised, which fell by 22% during the quarter to $50.2-billion – down from $60.7-billion in the second quarter.
However, as markets continue to stabilise, gold miner Barrick Gold’s announcement in the third quarter that it will acquire Randgold for $6.5-billion could influence other industry players to seek volume growth through M&A.
EY global mining and metals transactions leader Lee Downham said, in the third quarter of 2018, mining and metals companies continued to tread carefully in their approach to dealmaking and capital allocation.
“Geopolitical instability, including ongoing trade turbulence, has compounded the sector’s focus on optionality across existing projects and a reluctance to execute higher-risk capital investments.
“But this approach will eventually have to shift more toward an investment-led strategy across the industry, with the potential for acquisitive growth.”
This sentiment is reflected by the CCB, which finds that the sector could be primed for a significant rise in M&A activity over the next year.
Seventy-four per cent of global mining and metals executives say they expect the M&A market to improve in the next 12 months, up from 53% last year, and 52% say their M&A pipeline will increase in the coming 12 months, compared with 34% a year ago.
Sixty per cent also expect to see an increase in the number of completed deals, almost double last year’s response rate (34%).
More than a quarter of CCB respondents (27%) expect to see an increase in cross-sector M&A driven by technology and digital.
Downham noted that while EY has seen some companies looking toward measured growth through joint ventures and strategic partnerships, and there has been a notable acceleration in battery metals deals into the second half of the year, dealmaking has remained sluggish.
The latest CCB indicated that caution could now be lifting, and 2019 may well see the sector enter a new phase, marked by acquisitive growth and bolder dealmaking.