MINING INDABA •

By Luke Peters : Valuations manager and Ian Benning : Associate director , Deloitte Technical Mining Advisory

M & A activity among miners is expected to slow down due to global recessionary fears . Against a backdrop of growing demand for transition metals , Africa is wellpositioned to become the focal point of mineral asset development and acquisitions .

S & P Global Market Intelligence LLC

M & A activity in the mining sector initially slowed down due to the Covid-19 pandemic , but as the world emerged from operational lockdowns , transaction activity quickly started to gather pace . Although this race for business growth through asset acquisition has been observed globally , Africa is experiencing strong mining investment , mostly due to greater prospectivity for critical commodities that supply a green energy future ( Africa ’ s role in a clean energy future | Energy and Resources ( deloitte . com )).

Across African countries , at least 153 mineral asset transactions have been announced since the beginning of 2021 , across a wide range of commodities ( S & P Global Market Intelligence LLC ). Of these , gold projects account for c . 30 %, most of which are in West Africa . Copper assets made up a further c . 15 % of all transactions followed by another c . 25 % of various energy transition metals ( i . e . lithium , graphite , REEs , tin , tantalum and nickel ). Prior to the pandemic , an overheated lithium market meant assets were passing hands at untenable prices . Post-Covid , there has been a resurgence in battery metals interest . The realisation that a dramatic increase in supply of critical commodities is required for the transition to clean energy has

Figure 1 : Select commodity price history ( LME / LBMA , distributed by Refinitiv retrieved from S & P Global Market Intelligence , COMEX / NYMEX / LME , retrieved from S & P Capital IQ ) driven market sentiment , and there is a global scramble to achieve supply security . In contrast , the ongoing rally in coal prices from mid- 2021 has revoked the global perception of a declining industry , and with the current energy crisis in Europe , has shown that interest in coal could continue to hold in the short to medium term .

Valuations and critical inputs The key considerations to growth through M & A can , at a high level , be summarised as ( 1 ) the prevailing macro-economic conditions , ( 2 ) the buyers ' or sellers ' growth strategy and ( 3 ) an acquirer ’ s ability to integrate the asset into their portfolio to extract the maximum value through different economic conditions . These considerations will ultimately determine how much a buyer is willing to pay for an asset .

Growth in M & A activity is typical in high commodity price environments . M & A , if done properly , can accelerate industry consolidation , where miners aim to achieve more competitive and efficient business practices , and assist companies in building a robust portfolio of mineral assets . Both outcomes positively impact company profits and create additional shareholder value .

The macro-economic environment that kickstarted from unprecedented stimulus measures in response to Covid-19 , led to more bullish behaviour from many miners , pushing to grow business through M & A activity . This was enabled through several mechanisms . Firstly , lower interest rates allowed companies to take on cheaper debt to finance transactions and capital projects . Secondly , a sharp rebound in economic activity , coupled with the steady growth forecast in green metal demand contributed to sustained commodity price increases .

From mid-2020 to early-2022 , a combination of cheap debt , high commodity prices and the expectation of greater revenues being squeezed from every marginal tonne of ore culminated in a flurry of mineral asset transactions . That said , the fundamental difference to prior periods of booming mining M & A is the capital discipline that mining executives have employed over the last decade , including the last few years . However , there is always a risk of paying a premium for a mineral asset with the transaction occurring during a period of inflated prices and favourable macroeconomic conditions . The consequential risk is an inability to extract value from the asset down the line once economic conditions shift negatively ( Mining M & A in an altered world | Deloitte Insights ).