While global economic growth has increased in the past few years, mining M&A activity has not seen a similar increase. However, a report published by KPMG on mining M&A activity during the second half of 2017 shows that business conditions appear to have improved for the mining sector. KPMG believes that mining companies' focus on correcting their balance sheets and winning back investors have had a positive impact on their cash accounts and have given mining companies some flexibility to become more active in acquisitions. Comparing M&A activity from July to December 2017 to that of the first half of the year, mergers and acquisitions greatly expanded in North America and Asia, both in deal volume and value. Globally, however, deal volume has increased but average deal size continued to shrink, with only two transactions exceeding $1 billion. The focus on smaller value deals appears to be caused by mining companies pursuing strategic acquisitions and diversifying their portfolios by entering into earn-in agreements and step acquisitions of exploration companies.
EY predicts that 2018 will see an increase in mining M&A activity, with companies returning to an investment-led strategy. Activist investors are expected to continue to play a key role in 2018 by continuing to influence mining strategies and commodity portfolios of mining companies. Lithium, copper and cobalt deals are expected to be featured prominently in M&A activity in 2018 as media attention grows around the importance of critical minerals required in the production of batteries. In December 2017, President Trump signed an executive order calling for an end to US reliance on imports of minerals such as lithium and cobalt. This move is expected to increase domestic mining activity of critical minerals, which may fuel M&A as larger mining companies may seek to acquire critical mineral exploration companies.
The author would like to thank Olga Lenova, Articling Student, for her assistance in preparing this legal update.
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