Global mining and metals mergers and acquisitions (M&A) deal value nearly doubled in the second quarter of the year – rising 93% to US$7.8b from US$4.1b in Q1 2016, according to latest data analyzed by EY.
Deal volume also increased 27% quarter-over-quarter with 104 deals recorded compared to 82 in the preceding three months.
Asia-Pacific recorded the highest deal value in Q2 worth a combined US$3.6b, which includes Sumitomo Metal Mining Co., Ltd.’s $1b acquisition of a 13% stake in the Morenci copper mine but excludes the major acquisitions by China Molybdenum Co., Ltd. of Freeport-McMoran Inc.’s stake in the Tenke Fungurume asset and the Anglo American’s niobium and phosphate operations, which had yet to complete in Q2.
“There is a significant amount of speculation around whether we’ve finally reached the bottom of the market, and this rise in M&A activity certainly suggests growing confidence in the mining and metals sector,” says Lee Downham, EY Global Mining & Metals Transactions Leader.
“Companies – especially mid-tiers and majors – continue to reassess and reduce portfolios to strengthen balance sheets and inject more flexibility into their business models. That, coupled with growing confidence, is translating into increased deal activity.”
Impact of uncertainty
Deal value and volume may be up in 2016, but year-over-year figures reveal the impact of recent uncertainty in the market. Second quarter deal value is down 51% on the previous year – due in part to the BHP Billiton demerger in 2015 – while deal volume only increased 13% over the same period in 2015.
Meanwhile, North America experienced the greatest volume of deals at 56 – representing a 54% of total global deal volume, largely reflecting mid-market consolidation in the gold sector.
Downham says: “The theme of strategic divestments continues to dominate the transaction landscape, with China demonstrating an appetite to meet vendor expectations on value for world-class assets.”
Total capital raised in the sector globally was down 5% quarter-over-quarter and down 28% year-over-year to US$60b. There was, however, an overall increase in volume with 770 transactions closing – up 30% from Q1 2016 and 43% from the same period in 2015.
Downham says: “Deal activity is likely to remain rocky in the coming months as the sector adjusts expectations and realigns portfolios in response to the current market conditions.”