Capital Flows Out Of Gold Mining Into Cobalt, Steel, Lithium
(Kitco News) - The gold sector could see a supply crunch on the horizon as investment capital flows into other metals, according to a report from EY.
The report from the research firm shows that value of merger and acquisitions in the mining sector increased 15% in 2017; however, the number of transactions declined by 6% last years.
“Last year we saw fewer deals but at better values. In 2018, we expect to see more deals supported by investment-led strategies to diversify by commodity or region. Some of this activity will be to shape portfolios for future growth and sustain shareholder returns,” the analysts wrote. “In 2018, we expect stronger demand for financing and flexibility to remain important as the sector seeks to maintain a balanced and efficient capital structure.”
Specifically, in the gold market, EY noted that M&A activity declined by 13% with the value of activity falling by 34% last year. For lead zinc and silver projects, financing activity dropped 17% with the value increasing 32%.
While gold is suffering from a lack of financing, EY said that with the growth in electronic vehicles is increasing demand for specialty metals like cobalt, and lithium.
“With the buzz around new world critical minerals and battery technology, deals in lithium, copper and cobalt are expected to feature high on the agenda of management teams across the industry,” the analysts said. “The desire to shift from higher to lower risk jurisdictions may also influence portfolio adjustment, particularly for precious metals.”
EY also noted that the source of funding for the mining sector appears to be shifting. For the last two years industry participants accounted for nearly 70% of the financing deals; however, last year financial investors accounted for 22.4% of the transactions made last year, its highest level since 2015.