Global mining and metals deal value fell by 9.5 per cent year-on-year in the second quarter of 2018 according to the findings of the latest EY quarterly Mergers, acquisitions and capital raising in mining and metals.
Paul Murphy, Oceania Transactions Markets Leader, EY said that while global deal volumes have declined year-on-year, the Australian market has been buoyed by the strong global appetite for strategic metals.
“Lithium has been a hot topic, but where it is really getting interesting is in the potential applications for energy storage and 3D printing such as cobalt, nickel, graphite and vanadium. There is a broader realisation of the massive market potential which is already evident in the price performance of these commodities over the past two years,” he said.
“Despite sluggish M&A activity overall, strategic metal prices and deals are accelerating,” Mr Murphy said.
Mr Murphy said deal value for strategic mineral assets was up 22 per cent year-on-year in 1H18, as investors increasingly look to position in minerals critical to new technologies.
“Even the most conservative assumptions for the take-up of storage technologies for mobile applications and flow batteries for networks will require tens of billions of investment over the next decade to meet demand,” Mr Murphy said.
Mr Murphy said despite the popularity strategic minerals are relatively small part of the market so steel, coal and gold transactions will continue to dominate, representing 62.5 per cent of the deals in 2Q18.
The findings indicate that companies in the sector remain ever cautious in their approach to deal-making with a leaning towards joint ventures and strategic partnerships for growth opportunities.
“A conservative approach to deal-making remains, despite a return to stronger balance sheets. Dealmakers are focused on the most attractive and low-risk projects in this conservative environment. Through 2018 the sector will be driven by investment, rather than long-term acquisitive growth,” Mr Murphy added.
With businesses maintaining their focus on short-term projects, capital-raising activity remained slow during 2Q18. Global aggregate capital raised decreased by 3 per cent to US$131b in 1H18, while 2Q18 volume was just 6 per cent higher than the previous quarter, at 651 deals.
“Firms are typically well capitalised with strong balance sheets across the sector. A conservative mood has taken hold which means higher-risk capital investment has been delayed,” Mr Murphy concluded.