Material Matters: M&A, LNG, And Coal

Commodities | Mar 05 2019

Corporate battles, market restructuring and trade tensions drive commodities action

  • Global mining deals total US$114bn as sector consolidates, capital raisings fall
  • Battle between North American gold titans could mean rich pickings for local miners
  • LNG prices to remain high as east coast market restructures
  • Metallurgical coal holds up despite China ban; thermal coal price languishes

By Nicki Bourlioufas

Global mining sector consolidates, cuts back new capital raisings

The total value of financial deals in the mining sector worldwide fell by -14.9% in 2018 to US$114bn, according to data and analytics company GlobalData.

The value of mergers and acquisitions rose by 13.5%, but this was more than offset by a -32.4% decline in the amount of capital raised. Five countries made up 65.2% of the global total, with Australia the third largest in terms of deal value, behind China and Canada but ahead of the US and Indonesia.

The largest deal was Tianqi Lithium Corp’s acquisition of a 23.77% share in Chilean lithium miner SQM. China’s Tianqi bought the stake from Canadian fertilizer giant Nutrien for US$4.1bn. Chile has the world’s largest reserves of lithium, which GlobalData calls “a high growth commodity given the rise in demand for lithium ion batteries for electric vehicles”.

The five largest deals, out of the total of 3,000, were all worth more than US$2bn. Together they accounted for 15.8% of the global deal value. Another 60 deals ranging between US$500m and US$2bn accounted for 44.1% of the total value.

Aussie gold miners could pick up assets as North American giants wrestle for control

Ord Minnett says Australian miners could play a role in any deal that emerges from the skirmishing between Canada-based Barrick Gold and its US rival Newmont Mining. Barrick has launched a hostile all-scrip US$18 bn offer for Newmont, citing potential benefits of more than US$7bn if the two giants combine their operations.

Ord Minnett says consolidating Barrick's and Newmont's footprints in the US states of Nevada and Colorado would unlock valuable synergies, but it is unlikely that Newmont shareholders would be willing to share this equally with Barrick when Newmont is getting close to concluding its own US$10 bn bid for Canada’s Goldcorp.

The manoeuvring has the potential to shake loose some of the North American companies’ non-core Australian assets. Ord Minnett identifies potential buyers as Newcrest Mining ((NCM)), Northern Star Resources ((NST)) and Evolution Mining ((EVN)).

The stockbroker  says Newcrest could pay as much as US$3–4bn for assets without putting significant pressure on its balance sheet. With current market capitalization of around US$14bn, Newcrest has gearing of 11.5%, a net debt to operating earnings ratio of 0.6, and excellent operating cash flow. The Ords team rates Newcrest a Hold with a target price of $25.00 by December 2019.

Northern Star has already made its first foray into North America, buying the Pogo operation in Alaska in part with an equity raising that was very well supported. Ords says this miner is “the key growth stock within the ASX gold sector” and could look at more opportunities almost immediately. Ord Minnett rates Northern Star at Accumulate, with a target price of $10.20.

Evolution Mining is expected to generate $429m of free cash flow in 2018-19 and can look to allocate more capital to exploration, dividends and M&A opportunities in the next 12 months. Ord Minnett rates Evolution a Hold, with a target price of $3.40.

Evolution has recently paid $51m for a 19.9% stake in Tribune Resources, giving Evolution 8.4% of the East Kundana Joint Venture via Tribune’s holdings in Northern Star and Rand Mining. The stockbroker says the key question is whether the investment brings Evolution and Northern Star closer to discussing synergies or combining their Kalgoorlie businesses.


The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE

MEMBER LOGIN