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China seen sustaining recovery in global mining M&A

[TIANJIN] A rebound in mining mergers and acquisitions is set to continue into 2019, led by companies from top metals consumer China, as a dearth of exploration spending leaves the industry in need of fresh investment, delegates told a conference on Thursday.

Sector M&A in mining powerhouse Canada had its best quarter in more than seven years in July-September, spurred by Barrick Gold Corp's planned US$6.5 billion acquisition of Randgold and Chinese firm Zijin Mining's C$1.86 billion (S$1.97 billion) deal to buy Nevsun Resources .

"We think that this year and next year will be the years of consolidation," Keith Spence, president of Canada-based Global Mining Capital Corp, told the China Mining conference in Tianjin.

Mr Spence, whose company co-invests in mining projects with Chinese firms, told Reuters he had been pushing them to buy assets three or four years ago when metal prices were low, to no avail. "Now the market is up and we're getting a lot of interest from the Chinese," he said.

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When nobody is replenishing reserves, a round of M&A or consolidation to kickstart investment is the only answer, Mr Spence explained. "People used to talk about peak oil. I think people are starting to talk about peak gold and in some ways peak copper."

Chinese investors are increasingly keen on battery metals such as lithium and cobalt, delegates said.

"We have more clients coming to us for consultancy services" on gold, lithium and copper projects, said Ken Su, a transaction services partner at PWC.

China's Tianqi Lithium in May agreed to buy a 24 per cent stake in Chilean lithium miner SQM, for US$4.1 billion, although that deal is currently being contested in Chile's courts.

Chinese firms are now "more willing to invest in projects that are in the early stage of exploration," Mr Su said, adding that PWC was predicting a "huge wave of investment" in mining.

Trevor Hart, global head of mining at KPMG, noted that miners have been optimizing assets and reducing debt for more than a decade.

"There is very good and sound logic to that but it has had the effect that the mining sector now needs to invest for future growth," he said. "It needs to replace or add reserve inventories or it needs to develop new assets."

"We see an uptick in M&A activity globally and we also see the significant increases in exploration budgets ... and these will be the themes of the coming few years," Mr Hart said.

REUTERS