Battery Metals to Drive 2018 M&A, Says EY

As February begins to wind down, EY has analyzed 2017 trends to help mining companies and investors prepare for what 2018 will bring in terms of mergers and acquisitions.

According to a new report, Mergers, Acquisitions and Capital Raising in the Mining and Metals Sector, global mining and metals deal value went up 15 percent last year, making it the highest value of completed deals since 2013.

The increase came despite a 6-percent drop in global deal volume that same year, which the report attributes to “financial distress.”

“In 2017, mining and metals companies came to an inflection point as financial distress abated and the sector began to cautiously move toward a more strategic mindset,” EY Global Mining & Metals Transactions Leader Lee Downham said in a press release.

“We expect to see more deals in 2018 as investment-led strategies begin to dominate, but the return of transformational consolidation across the industry is unlikely as capital discipline is maintained.”

A big player in 2017 was China, whose role as an acquirer represented 36.6 percent (US$18.7 billion) of global deal value, while its role as a target represented 26.6 percent (US$13.6 billion). North America was also a large contributor, accounting for 32 percent (US$16.2 billion) of global deal value as either a target or acquirer, resulting in 118 deals.

Two of the primary drivers behind 2017’s increase in deal value were coal and steel, as coal saw a 156-percent increase in acquisitions in 2016, while steel transactions doubled in value to US$13.3 billion. Meanwhile, the report predicts that 2018’s biggest drivers will be pipeline replenishment, next-generation mineral demand and synergistic volume growth.

As the reality of electric vehicles becomes more apparent, their accompanying commodities are set to become equally prevalent. However, the rise of these vehicles may also paint a grim future for fossil fuels, as some countries, such as Norway and the Netherlands, are opting to phase out petrol and diesel car sales in the next 20 years.

“[C]ontinued shareholder pressure to reduce exposure to fossil fuels could lead to further divestments or spin-offs across the listed producers. Management teams are increasingly casting an eye over minerals required for new battery technologies, accelerated by the expected growth in electric vehicles,” Downham said. “As such, deals in lithium, copper and cobalt are expected to feature highly in 2018.”

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.