Australian capital raisings in the mining and metals space dropped by 58% year-on-year to $US931 million in the March quarter, according to a new EY report.
There were only 17 deals for the quarter with a value of $1.4 billion.
However, Rio Tinto’s $606 million Bengalla coal sale and EMR Capital’s $775 million acquisition of the Martabe gold-silver mine made up the bulk of the total.
Globally, deal value fell by 45% to $3.3 billion, with the number of deals falling to 72 from 90 in the December quarter.
Gold deals accounted for more than half of the deal value and volume at $1.7 billion and 46% respectively.
“Financial distress, particularly in the US coal industry, continues to weigh on many companies across the mining and metals industry and it’s playing out in the form of portfolio realignment and divestments to raise capital,” EY Oceania mining & metals transactions leader Paul Murphy said.
EY expects divestments to continue across the sector, leading to an increase in deal volume and value.
“We are also seeing increasing interest in the ‘tech’ metals sector – copper, cobalt, graphite, lithium and vanadium – driven by anticipated demand for inputs into electric motors and battery storage,” says Murphy.
Private equity is set to play a growing role, with deals from EMR, and only last week Denham Capital, whose Pembroke Resources acquired Queensland coal assets.
Smaller funds like Pacific Road Capital and Resource Capital Funds have also been active of late.
“Cash and sustaining costs continue to be the focus for most players in the sector, and while well capitalised miners will continue to consider acquisition opportunities, we are now starting to see the much anticipated foray of private capital into the sector,” Murphy said.
“Private capital activity is most certainly a lead indicator for growing deal activity. If they are seeing value it is a sign that the deal cycle will begin to pick up.”
Murphy says the tough market and increasing interest by financial investors has put a sharp focus on the level of preparation by sellers.
The report found that only just over a third of global miners had developed consistent execution procedures for divestments.
“Sellers must be able to tell a credible and compelling value story to attract and retain buyer interest, they need to prepare more and sharpen their sales skills if they want to secure a deal and secure the best outcome for shareholders,” Murphy said.
