Mining M&A is heating up, says Miningnews.net
13th April 2018
Resources Rising Stars
The past fortnight has brought major mining M&A and analysts have forecast a new wave of corporate activity, writes Kristie Batten in Miningnews, citing Rio Tinto’s recent US$4.15 billion from Australian coal, Oz Minerals surprise $442 million takeover of Avanco and Mineral Resources’ $280 million scrip deal with Atlas Iron.
“Other significant deals so far this year include Newcrest Mining's US$250 million investment in Lundin Gold and Northern Star Resources' A$80 million acquisition of Westgold Resources' South Kalgoorlie operations,” Batten wrote.
“While Australian majors and mid-tiers are generally cashed up, UBS believes miners will continue to favour returning cash to shareholders over developing greenfields projects or M&A.
“But Morgan Stanley analysts believe that M&A will become an increasingly important tool for reinvesting capital in 2018/19.”
Quoting the Morgan Stanley report, Batten says spending on growth remains modest in the context of the past 10 years because of a paucity of growth projects to invest in, companies remaining concerned about adding too much supply and unbalancing markets and management remaining uncertain about demand.
Against this backdrop, the acquisition of existing assets solves several of these issues, adding production and future growth potential without adding to global supply.”
Closer to home, RBC Capital Markets believes the Australian sector is in the best health of the past decade.
"As we observe the sector now, the clock arrives back at midnight, with prices starting to move, while capital remains low, and operating costs only show early signs of upwards movement," RBC analyst Paul Hissey said yesterday.
"High margins, low/no debt and manageable costs are identifiers we haven't seen in resources for more than a decade (in our view)."
A series of poorly timed deals in the sector over the past decade has left many CEOs too cautious to consider M&A, but Hissey said not all M&A over the period was bad, and it was about the timing, rather than the amount paid.
RBC's theory is that fortune favours the brave, and the time for M&A is now.
"If we can convince people that it's actually the ‘when' that matters (and not the ‘how much'), then we just have to demonstrate there is more upside potential ahead of us than downside," Hissey said.
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