QUINTIN HOBBS With some improvements in commodity prices, most traditional industry acquirers are still focused on portfolio realignment
Global mining and metals mergers and acquisitions (M&A) activity remained subdued in the third quarter (Q3) of 2016, with deal value flat at $7.9-billion and deal volume up by 12% to 121 deals quarter-over-quarter.
This is according professional services firm EY’s recently released ‘Mining Through the Cycle: Exchange Performance Comparison’ report.
The report says that capital raised in the sector followed a similar decline trend during Q3. Total capital raised was $49.9-billion in Q3, down 17% from $60-billion in the second quarter (Q2) of 2016.
In South Africa, mining and metals M&A activity dropped significantly between Q2 and Q3 with deal value coming in at $53-million. However, EY points out that deal volumes increased by 25% to 5 deals quarter-over-quarter. Compared with Q3 2015, deal value, however, increased significantly in Q3 2016.
EY mining and metals transactions director Quintin Hobbs says, with marked improvements in certain commodity prices, most traditional industry acquires are still focused on portfolio realignment, rather than acquisitions for future growth. “These divestment strategies are driving activity rather than a rush to consolidate as we saw at the peak of the supercycle.”
Hobbs highlights that China was the highest value dealmaker in Q3 as the target of $2.4-billion in transactions and the buyer of $3.8-billion worth of transactions representing 29% and 48% of these respective global totals.
He remarks that this was buoyed by Chinese firm China Molybdenum’s $1.5-billion acquisition of diversified miner Anglo American’s niobium and phosphate assets in Brazil. Hobbs notes that the majority of Chinese deals were domestic (89%), which he says is reflective of significant consolidation within the region.
“Efforts to strengthen the balance sheet by reducing capital expenditure, cutting costs and divesting noncore assets continue to improve mining and metals companies’ financial positions,” he concludes.