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EY: Mining Executives Expect Increased M&A Activity In Next Year

Kitco News

(Kitco News) - Merger-and-acquisition activity in the mining sector is likely to pick up in the next year, said the consultancy EY in a report Thursday.

The firm’s 19th Capital Confidence Barometer shows that 58% of global mining executives say they intend to pursue mergers and acquisitions in the next 12 months, compared with 46% across all sectors.

Third-quarter deal value rose 25% from the prior quarter to $16.8 billion, and the 115 deals was a 15% increase, EY said. Still, the firm described mining companies as cautious about mergers as they continued to focus on balance-sheet stability and returning cash to shareholders. This was reflected by a decline in capital raised, which fell by 22% during the quarter to $50.2 billion.

“In the third quarter of 2018, mining and metals companies continued to tread carefully in their approach to deal-making and capital allocation,” said Lee Downham, EY’s global mining and metals leader for transactions. “Geopolitical instability, including ongoing trade turbulence, has compounded the sector’s focus on optionality across existing projects and a reluctance to execute higher-risk capital investments. But this approach will eventually have to shift more toward an investment-led strategy across the industry, with the potential for acquisitive growth.”

EY said the autumn announcement that Barrick Gold Corp. (NYSE, TSX: ABX) will acquire Randgold Resources Ltd. (Nasdaq: GOLD) for $6.5 billion could influence other industry participants to aim at increased volume through mergers and acquisitions.

The EY report said that 74% global mining and metals executives say that they expect the M&A market to improve in the next 12 months, up from 53% last year. Further, 52% say that their M&A pipeline will increase in the coming 12 months, compared with 34% a year ago. Sixty percent also expect to see an increase in the number of completed deals, almost double last year’s response rate of 34%.

“While we have seen some companies looking toward measured growth through joint ventures and strategic partnerships, and there has been a notable acceleration in battery metals deals into the second half of the year, deal-making has remained sluggish,” Downham said. “The latest Capital Confidence Barometer indicates that caution could now be lifting, and 2019 may well see the sector enter a new phase, marked by acquisitive growth and bolder deal-making.”

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