Golden prospects: Australia’s mining sector is booming following worst year since 1998

Data InsightDealspeak 10 May

Golden prospects: Australia’s mining sector is booming following worst year since 1998

After a year in which the Australian mining sector lost its sparkle, with the number of deals in 2022 slumping to their lowest level since 1998, the good times are back with a bang. This year has already seen the largest investment by value since 2012, with USD 26bn pouring into 20 Aussie mining deals, according to Mergermarket data.

Activity has reached fever pitch, driven by soaring energy costs and needs, a global move to decarbonisation and renewables, and a gloomy macroeconomic backdrop.

Australia has remained among the top two countries for mining deals in the Asia-Pacific region over the past five years, recording this year’s headline-grabber in the form of gold miner Newcrest [ASX:NCM] signing an exclusivity agreement with Canadian giant Newmont [NYSE:NEM] [TSX:NGT] via an AUD 32bn (USD 21.2bn) approach by the latter.

In a recessionary environment, gold companies are still seen as ‘safer bets’, even if profit margins are tarnished by rising construction costs, constraints on available labour and supply-chain challenges. None of which cooled bids for St Barbara’s [ASX:SBM] Leonora gold assets in Western Australia – the company recently rejected an AUD 732m offer from Silver Lake Resources [ASX:SLR], which had been vying with an AUD 600m proposal from Genesis Minerals [ASX:GMD].

 Thus far in 2023, Australian mining targets have made up 20 of the 49 deals across APAC, per Mergermarket, just ahead of China at 17. The region is currently ranked second globally for mining takeovers, only one short of the Americas, but both are far ahead of EMEA, which has seen 27 mining tie-ups in the year to date (YTD).

All that glistens is not gold

Lithium continues to play a key role in decarbonisation despite an apparent ceiling for prices following insipid demand for electric vehicles (EVs) from China and an increasing supply of the metal.

Those companies mining future-facing commodities such as nickel, lithium and copper can expect further attention. For example, Australian billionaire Andrew ‘Twiggy’ Forrest is looking to dig into nickel miner Mincor Resources [ASX:MCR] via an AUD 1.40 cash per share offer, reflecting bullish global sentiment for nickel and copper because, as it turns out, we need lots more.

Activity among industry operators has been robust. A joint venture (JV) between IGO [ASX:IGO] and Tianqi Lithium Corp [SHE:002466] attempted in April to acquire Australian lithium and gold company Essential Metals [ASX:ESS], but the deal fell through. The fallout may have been sparked by Australian mining services and processing company Mineral Resources [ASX:MIN] using its 19.95% stake in Essential Metals to stymie the bid. Another deal that failed to strike it rich was US-based Albermarle’s [NYSE:ALB] charge for Aussie lithium miner Liontown Resources [ASX:LTR], which was rejected on 28 March.

Note that US incentives from the country’s Inflation Reduction Act have fuelled dealmaking in the sector, as reported by Dealspeak North America, and several Australian mining companies, interviewed by Mergermarket, said they see this as an opportunity to land offtake agreements and investment.

Back in the black

Despite a global shift to renewables, coal remains a key source of energy for some nations, with seven of eight coal deals in APAC this year being cut by Chinese companies. It is a similar story in Australia, with South African thermal coal producer Thungela Resources [JSE:TGA] seizing an 85% interest in Japanese multinational Idemitsu Kosan’s [TYO:5019] Ensham coal mine in Queensland, Australia, after Idemitsu previously stated that it wanted to rationalise its coal assets.

Meanwhile, Japanese companies have already acquired a stake in vanadium and alumina company Vecco Group, and Japan Australia Rare Earths B.V., a JV between Japan Organization for Metals and Energy Security (JOGMEC) and Sojitz Corporation, is taking an AUD 200m chunk of Lynas Rare Earths [ASX:LYC], an Aussie-based provider of rare earth minerals mining and processing services.

China’s largest deal in 2023 YTD has been state-owned energy group Yankuang Energy Group Co’s conditional acquisition of 51% of Shandong Energy Group and 51% of Luxi Mining for USD 2.41bn. On 20 April, Chinese coal struck again, as China Cinda Asset Management [HKG:1359] divested a 29.9% stake in Ordos Yihua Mining Resources for CNY 2.99bn (USD 435m).

Finally, Yancoal Australia [HKG:3668; ASX:YAL] says it is interested in pursuing coal assets put up for sale by domestic giant BHP Group [ASX:BHP], as reported by Mergermarket.

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