Value of mining M&A plunges to lowest level since 2004

Aerial view of the processing plant at the Tenke Fungurume mine. (Image: Screenshot from Freeport-McMoRan Copper & Gold’s video)

With 2016 being a year of rock bottom-of-cycle prices, many expected it to also be a good year for mining mergers and acquisitions (M&A).

But while the number of deals made last year increased by a third from the year prior, to 477 deals in 2016, it’s the low value of the M&A that stands out in EY’s latest report, “Mergers, acquisitions and capital raisings in mining and metals – 2016 trends, 2017 outlook.”

Copper was the commodity of most interest, comprising three of the top 10 deals, by value.

According to EY, the year on year value of mining M&A fell 9% in 2016 to $44.3 billion. While that sounds like a lot, it’s the lowest level the industry has seen since 2004.

“Strategic restructuring and sovereign security drove some of the major deals through the choppy waters. This resulted in a marked increase in high-value transactions in the last quarter of the year, including the completion of Alcoa’s Arconic spin-off and FreeportMcMoRan’s sale of its Tenke Fungurume mine, which when combined had a deal value of US$6b, representing 14% of the total for the year,” the report reads.

EY report

Who were the deal makers and what were they buying or selling? According to EY, China led all countries as both a target and an acquirer last year as a result of consolidation in its metal sector.

“The country more than doubled the value of domestic and cross-border acquisitions it made in 2016. 4 of the top 10 deals were undertaken by Chinese acquirers. China Molybdenum’s activities accounted for US$4.2b worth of acquisitions this year — just under 10% of the overall deal value in the sector — with the acquisition of Freeport’s Tenke Fungurume mine in DRC and Anglo-American’s niobium and phosphate assets in Brazil.”

Copper was the commodity of most interest, comprising three of the top 10 deals, by value.

“This is reflective of longer term positive demand fundamentals for the commodity and a number of assets coming to market in the first half of the year that wouldn’t typically become available without the prevailing distress felt in the industry at the time. This provided an opportunity for strategic buyers, such as China Molybdenum and Sumitomo, to secure offtake from world-class assets.”

However, the consultancy notes, the biggest jump was in aluminium deals, which rose from just US$244m in 2015 to US$3.4b in 2016. The largest one was Alcoa’s $3.4b spin-off of its manufacturing business. “Aluminium, like steel, has been subjected to environmental crack-downs and cuts due to overcapacity in China, driving consolidation in the sector,” notes EY.

It says deals in 2016 were overwhelmingly on the sell side, with divestments being the main driver behind the transactions in order for companies to restructure their portfolios and reduce debt.

Looking ahead to 2017, EY says the year is unlikely to see any of the mega, multi-billion-dollar deals seen during the supercycle, with the possible exception of consolidation among Chinese producers. The consultancy also hints that juniors might see some action towards year-end.

“Portfolio realignment and structural changes across certain industries, such as steel, coal and aluminium, will be the drivers of deal activities. The lack of exploration spend as a result of limited access to capital, will inevitably contribute to a future supply deficit and may trigger a return to financing across the juniors towards the end of 2017,” according to the report.

Read the full report here

1198 0
Latest Stories

Colibri reports more drill results at Ramard; 311 grams per tonne silver, 2% lead, and 3.4% zinc between 37 and 38 meters depth, plus multiple intervals of silver-lead-zinc.

Colibri Resource Corporation reports final results from a 2400 meter drill program at the Ramard silver project, in Sonora, Mexico. The Ramard property consists of over 4000 hectares of mineral concessions located 100 km north of the city of Hermosillo, Sonora, wholly owned by Colibri's Mexican subsidiary, Minera Halcones. The Ramard property contains numerous historical artisanal silver mine workings.

Grand Canyon mining ban frustrating – Denison

The head of Denison Mines (DML.TO: Quote) said on Tuesday he is frustrated by the U.S. government's move to extend a ban on mining on 1 million acres of federal lands near the Grand Canyon, though the impact of the ban on his company remains unclear. In an interview with Reuters, Chief Executive Ron Hochstein said that while three of its Arizona Strip projects are unaffected, Denison is still looking into whether the six-month extension announced on Monday will have an impact on the development of its EZ Complex uranium deposits in Arizona.

SIGN UP FOR OUR DAILY NEWSLETTER

China’s share of global rare earth output to drop steeply

China's global share of rare earth output will drop steeply in the next two years as other countries ramp up production to compensate for domestic curbs on mining the minerals, a former government official and future rare earth group chief said. The country's rare earth output would drop from 95 percent of global output to 60 percent, reversing global reliance on China, Wang Caifeng, a former Ministry of Industry and Information Technology (MIIT) official told the official China Daily.

House Subcommittee to review U.S. gold reserves audit bill Thursday

Rep. Ron Paul, R-Texas, may be yet again running for President, but he has not abandoned his quest for an independent audit of U.S. gold reserves. A hearing is scheduled this Thursday before Paul's House Subcommittee on Domestic Monetary Policy and Technology on Paul's bill demanding an audit of all gold in the United States.

Ringbolt Ventures Ltd. commences drilling at Lisbon Valley Potash Project

Ringbolt Ventures Ltd. (TSX VENTURE:RBV)(OTCQX:RNGTF)(FRANKFURT:3OZ) has commenced drilling on its Lisbon Valley Potash Project in Utah. The planned drilling program is to test the potash and salt horizons on one of its state leases. The state lease is located on section 36, township 29.5 south and range 25 east. The drill plan is to use reverse circulation drilling to the top of salt bed 5 at an approximate depth of 2,800 feet where there is a reported historical assay of 18.5% K2O and then core drill the potash bed. Cane Creek Mine’s Solar Evaporation Ponds. Image by Ringbolt Ventures Ltd.

Environmental groups try to ban asbestos mining in Quebec

Environmental groups in Quebec are calling for an end to asbestos mining, the Montreal Gazette is reporting: Nature Québec, the Société pour Vaincre la Pollution, and Pour que le Quebec ait meilleure mine say asbestos should not be mined because is too dangerous for human health. Asbestos is banned in over 50 countries and is strictly controlled in Canada. Hundreds of workers exposed to asbestos have been diagnosed with lung disease, with many dying an early and painful death. One asbestos victim, Canadian Conservative MP Chuck Strahl, has called on the government to stop exporting asbestos, which is still used in building materials.

Lemon or Lamborghini Investors require the full picture on oilsands liabilities

Ever tried buying a car without an inspection? Or having only the engine examined but not the brakes? If so, you'd be playing a game of chance if the car had some rather expensive upcoming maintenance bills. Turns out for investors wanting to put their cash on the oilsands, it's currently not possible to have the full picture on oilsands liabilities Image is from Endleez at Wikipedia.