Trade in battery metals companies starting to accelerate, EY says

By IM Staff
Published: Thursday, 06 September 2018

The combined value of merger and acquisition deals in the metals and mining sector is rising even though the numbers of such deals is falling, according to consultancy EY. But in battery metals, activity is actually increasing, as Andrea Hotter reports.

Mergers and acquisitions (M&A) activity in the metals and mining sector may have slowed overall but battery metals deal activity has begun to accelerate, according to a report by consultancy EY.

The total deal value for rare earths and lithium assets was up by 22% year-on-year in the first half of 2018, with companies increasingly looking to capitalize on future demand for electric vehicles (EVs), EY said.

"Mining and metals companies are increasingly excited by the potential of minerals supply into battery technology, which may encourage acquisitions and investment into earlier-stage assets," Lee Downham, EY’s global mining and metals transactions leader, said.

"To date, we haven’t seen many big [market participants] moving into this space, and it will be interesting to see whether companies will be bold enough to respond to the rise in adoption of battery technology," he added.

In general, however, global mining and metals deal values fell by 9.5% year-on-year in the second quarter due to continued muted appetite for acquisitive growth, EY said.

While deal value in the first half of 2018 was up by 36% year-on-year, this was largely due to the $18 billion merger between PotashCorp and Agrium. This was completed in the first quarter, and represented 45% of deal value in the first half of the year, the report said.

Steel, coal and gold transactions continued to dominate, representing 62.5% of deals in the second quarter.

According to EY, the findings indicate that companies in the sector remain cautious in their approach to deal-making, although there are signs that firms are beginning to look toward measured growth through joint ventures and strategic partnerships.

"Mining and metals companies remain conservative in their approach to deals, despite a return to stronger balance sheets. There is still significant caution being exercised in the allocation of capital to anything other than the most attractive and low-risk projects," Downham said.

"Portfolio optimization remains a key focus, and investment into growing the pipeline of future production appears to be back on the agenda, but not at the risk of stressing balance sheets," he added. "There is no sign that this caution will reverse as we see out 2018, and we expect that this will be a year of expansion primarily through organic investment, rather than one of seeking long-term acquisitive growth."

Corporates increasingly drove the deal-making agenda in the first half of 2018, reflected by a wider geographical spread of M&A beyond China, which has been the epicenter of deal-making in recent quarters.

China’s share of deal value fell from 16% at the end of the first quarter to 14% or $5.8 billion overall in the first half, while Canada accounted for $19.7 billion and India for $6.3 billion of deal value, EY said, with the two countries collectively totaling 64% of deal value during the first half of the year.