Canadian miners are definitively back in the mergers and acquisitions (M&A) game, with the value of such transactions hitting $25 billion during the first three months of the year, or 86% more than in the same period of 2017, though volume of deals was slightly down.
Critical materials for the making of batteries that power electric cars, particularly lithium and cobalt, led the pile, with the transformational merger between two giant potash producers, PotashCorp and Agrium, being the top example, a study published Thursday by Ernst & Young reveals.
According to the experts, the buzz around new world critical minerals and battery technology, will put deals in lithium, copper and cobalt high on the agenda of management teams across the industry.
“The long-term outlook for copper and nickel remains positive, with prices slated to benefit from the growing adoption of electric vehicles and battery technology,” Jay Patel, EY Canada Mining & Metals Transactions Leader said in a statement. “But it is likely that significant price increases won’t come into play in the immediate future, as both markets currently face surplus conditions. In the meantime, companies should be actively reviewing their portfolios – keeping a keen eye on minerals and new technologies fit for future growth.”
Reflecting the wait-and-see mood prevalent across the industry, activity in other commodities was generally slow to the point that the volume of transactions decreased by 16% to 101 deals in the first quarter of 2018, compared to Q1 2017.
As a result, the Canadian Mining Eye index — which tracks the performance of 100 Toronto Stock Exchange and TSX Venture Exchange mid-tier and junior mining companies — dropped 8% in the three months to March 2018.
Gold, one of investors traditional choices, performed well in the period, EY says, with prices rising due to geopolitical risks and dollar weakness, offset partially by the recent US Federal Reserve rate hike of 0.25%.
Activity in the gold and coal sectors remained buoyant, representing around 15% of deals value. The bullion sector saw at least four transactions with deal value in excess of $200 million, the study shows, while there were consolidative deals in the coal sector in China, Australia and South Africa.
Assets in low-risk jurisdictions continued to attract more attention, with the exception of deals connected with commodities with limited geographical abundance, such as cobalt in the DRC. Over two-thirds of the transactions by volume were in Canada, Australia, China and South Africa.