Mining Industry update
The number of mergers and acquisitions (M&A) in Australia’s mining sector grew 31% last year to 96 deals. However the overall value of those deals has dropped by 73% to US $3.5 billion. Globally it was China that was on the hunt for mining assets. The country doubled the value of both domestic and international acquisitions in 2016. In total China accounted for 19% of global mining deals. 4 of the top 10 deals were undertaken by Chinese acquirers, and the Asia Pacific region accounted for 49% of global deal volume.
Business consultancy EY released the figures in its annual M & A report.
Head of Oceania Mining and Metals Transaction with EY, Paul Murphy, said the drop in the overall value of the deals was mainly due to the resurgent coal price.
“Going back 12 months when the coal price was lower, a lot of companies had balance sheet pressure, or decided that coal assets are no longer part of their strategy, and put them in the market,” he said.
“That’s because the general prognosis at the time for the price of coal was low and weak and it wasn’t going to recover any time soon.
“Then because the price of coal recovered so quickly and so strongly, a value gap emerged between the expectation of the buyers, who had a figure they were working with to buy, and the sellers who revised the price of their asset.
“As a result, a lot of transactions that started didn’t eventuate and some coal assets were pulled from the market.”
Paul Murphy expects to see the trend reverse this year as sellers seek to capitalise on regional demand for high quality Australian coal.
“Already in 2017 we’ve already seen one large coal mining deal talked about, in the Hunter Valley, NSW.
“And if the price stays within a fairly stable band this year, then we expect to see a few more coal deals occur in Australia.”
China spends big on mining deals around the world
Globally it was China that was on the hunt for mining assets.
The country doubled the value of both domestic and international acquisitions in 2016.
In total China accounted for 19 per cent of global mining deals.
Four of the top 10 deals were undertaken by Chinese acquirers, and the Asia Pacific region accounted for 49 per cent of global deal volume.
“China’s molybdenum’s activities alone accounts for $US 4.3 billion ($5.6 billion).
“The Chinese market is maturing,” he said.
“It’s going from relatively indiscreet expansionary acquisitions to activity that’s driven by cost efficiency and vertical integrations.”
Connect with me, blog post by Ketan Deshpande, Minnesota, MN