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Mining deals soared in 2017
January 5, 2018

It was a busy year for deal making in the global mining sector as deals totaling more than $96.8 billion were made in 2017.
Thompson Reuters date show that coal and iron ore were the primary targets of the deals.

Mining deals totaled $96.8 billion, based on 2,109 mostly modestly-sized transactions in the past year, Thomson Reuters Deals Intelligence showed. That marked a 10 percent increase in value from 2016 but fell far short of $150-$200 billion totals in the boom years, after which miners had to write billions of dollars off the value of their assets.

With the rise of electric vehicles and the need to supply the materials for their batteries one might expect commodities such as cobalt to be the primary target of deals, however, more than $92 billion of the 2017 total was spent on coal, iron ore and steel deals as investors stayed loyal to a sector that still generates steady profits despite the global drive to reduce pollution.

Analysts predict continued demand, even though coal is the biggest source of the carbon emissions that the 2015 Paris Agreement aims to curb. Steel-making, which uses iron ore and coking coal, accounts for an estimated seven percent of industrial direct CO2 emissions, industry figures show.

For the mining sector, the minerals offer an established way of making money when ultra-low official interest rates mean relatively cheap funding is available to purchase assets.

China is pushing to limit consumption of coal, which is used to produce most of its electricity. But its coal output will still be around 3.9 Gt/a (4.3 billion stpy) by 2020 and on Friday it announced plans to create several “super-large” mining companies by then.

Demand for metals used in making batteries, such as lithium, cobalt and nickel, is expected to soar as China leads the shift to electric vehicles. But investors regard them as less certain to guarantee profits because prices are volatile and the basic minerals require additional processing for use in batteries.

Lithium and cobalt CBD3 in particular look overpriced. Spot battery grade 99.5 percent lithium carbonate in China AM-995C-LTCB, where most lithium batteries are made, rose around a third in 2017, while cobalt prices more than doubled.

Analysts and bankers say mining companies are holding fire on battery deals due to the risk of paying too much, as they did for assets at the height of the commodities boom that culminated in 2012.

The most active dealmaker of the major miners Glencore - whose $46 billion merger with Xstrata in 2013 was the biggest mining transaction of all time - said repeatedly in the past year that it favored bolt-ons and partnerships to avoid the high levels of debt involved in over-ambitious deal-making.

In 2017 the number of mining deals grew 27 percent to the highest figure since 2012 as miners focused mostly on relatively small transactions, the Thomson Reuters data showed.

Brazil accounted for the highest value deal, iron ore giant Vale’s $21 billion acquisition of shareholder group Valepar - although analysts said this was a matter of standardizing the shareholder structure rather than constituting a classic M&A deal. It was the only transaction above $5 billion in 2017.

Brazil’s mining M&A deals in 2017 totaled $22.9 billion, just ahead of China’s $18.8 billion as Coral Pearl International Ltd bought Iron Ore Mining International from neighboring Mongolia and a Chinese investor group snapped up Huaibei Mining Co Ltd at home.
 

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