Lithium, gold and base metals driving deals

21/01/2019 - 15:29

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SPECIAL REPORT: Global players are converging on WA as resources assets become increasingly attractive in the international arena.

Lithium, gold  and  base metals driving deals
Meredith Campion says global investors are running the ruler over WA projects en masse. Photo: Gabriel Oliveira

Global players are converging on  WA as resources assets become increasingly attractive in the international arena.

A rebound in mergers and acquisitions activity in 2018 has been tipped to build momentum over the next 12 months, as international interest increases in Western Australian lithium, gold and base metals assets.

M&A activity in WA has mirrored global trends, with the total value of deals done in the state increasing to $25.07 billion in 2018, from $14.8 billion in 2017.

The collective value of M&A activity reached $US3.5 trillion ($4.88 trillion) globally, according to research by Mergermarket, the third most prolific year since 2001.

(click here to view a full PDF version of this special report)

Allen & Overy partner Meredith Campion said there had been a significant uplift in mergers of equals in WA, as well as general M&A activity.

“We always say every year ‘I think things are going to get better’, but in 2018 they really did,” Ms Campion told Business News.

“Globally, there has been an increase in foreign investors looking; we have a lot of clients looking at projects in Australia again.

“There hasn’t been a lot of activity for a long time, so companies are starting to feel the need to take action.

“What we’re seeing is companies branching out into broader M&A because they’ve got the funds to continue on, but they’re not going to see organic growth so they are going to try and buy some assets.

“We are also seeing a lot of private equity funds that are very cashed up and doing a lot of due diligence on projects, and I think we’ll see a lot more of that in the next 12 months.”

Ms Campion said interest in Australian assets was coming from all sectors of the globe, particularly from European, Japanese and Northern American institutions keen on adding to their portfolios.

She said many big global resources investors had shifted their attention away from assets in Africa towards Australia due to increasing political risks.

“It’s fairly clear that the political risk there and changes in government policy towards mining have made projects difficult to do there, and we’ve had some clients looking back at Australia for investments and having a bit of a hedge with diversity,” Ms Campion said.

Technology metals such as lithium have drawn significant interest from global players, helping the McGowan government turn its grand vision to transform the state into an internationally significant lithium province into reality.

A recent report from PwC forecast increasing demand for lithium had been underpinned by rising interest in electric vehicles, with cashed-up chemicals giants and battery manufacturers jostling to secure supply.

US-based industrial chemicals giant Albemarle made a $1.6 billion splash in WA with its acquisition of a half stake in Mineral Resources’ Wodgina lithium mine, illustrating the emergence of a new era of resources development.

The two companies plan to move the operation up the supply chain away from simply extracting and exporting minerals to value-adding through processing, by constructing a two-stage, 100,000 tonnes per annum lithium hydroxide plant at the mine.

Another major deal was Kidman Resources’ Covalent joint venture with Chilean lithium giant SQM, with the companies planning to add value to the Mount Holland lithium operation by building a 45,000tpa lithium hydroxide plant at Kwinana.

Cannings Purple managing director Warrick Hazeldine, whose firm advised Mineral Resources on the Wodgina deal, said both transactions were indicative of the shifting attention from corporates and investors towards the delivery of the state’s potential.

“A key focus was on securing world-class hard-rock deposits with long-term potential,” Mr Hazeldine told Business News.

“These two joint ventures are great examples of a wave of long-term investment to ensure a new downstream processing industry can take hold in this state and create not just jobs, royalties income and shareholder returns but hopefully the know-how for the next generation of workers in the battery metals sector.

“I would expect the corporate narrative this year to focus heavily on the delivery of early goals for these long-term ventures – including the benefit these and other lithium projects are delivering to the state, and in particular regional WA.”

Gold was also a major highlight of M&A in WA during the past 12 months, with miners Northern Star Resources, Doray Minerals, Silver Lake Resources and Ramelius Resources driving major transactions.

The largest value M&A deal in WA’s gold mining sector in 2018 was a $421 million tie-up between Silver Lake Resources and Doray Minerals.

Ramelius launched a $59 million hostile takeover bid for junior explorer Explaurum in September, a deal flagged at the time to kick-start further consolidation in the sector.

HopgoodGanim partner Paul Harley told Business News that mid-tier miners were joining forces in efforts to capture more attention from institutional investors.

“Gold’s been fantastic,” Mr Harley said. “While the headline gold price hasn’t moved a lot, our currency has, and that’s made it competitive.

“There are margins to be made in gold now, and I see people pulling the trigger to pull ounces out of the ground and make that margin.

“The Doray-Silver Lake merger is a great example of where the consolidation in mid-tier gold is.

“All the mid-tier guys are trying to combine to jump in with the big guys, to get that relevance and increase the return for shareholders.

“Effectively what they are trying to do is put themselves in the eye line of the big funds and get that institutional backing.”

Northern Star accounted for the biggest-value asset grab in gold, with the Bill Beament-led miner splurging $347 million on its first asset outside of WA in the Pogo underground mine in the US, which it bought from Japan’s Sumitomo Corporation.

“Northern Star were having a good look around, they’ve been cashed up for a long time and you get the sense that they did have a look at quite a few projects,” Mr Harley said.

“Everything I’ve heard about Pogo is that the resource is amazing, the key will be bedding down the operations.

“One thing about Northern Star is they are really disciplined operators, they are in that top tier of operational know-how.

“They have that relevance, which the other guys are aspiring to.”

Outside of gold and lithium, Mr Harley said base metals were also garnering interest, particularly from big international private equity players.

A recent report by Wood Mackenzie flagged nickel as an M&A hotspot in 2019, with many nickel producers’ share prices at lows not experienced since mid-2017.

US-based private equity group Black Mountain Metals is spearheading a push into the WA’s nickel sector, with its activity including a failed takeover bid for Poseidon Nickel and the $15.1 million acquisition of Panoramic Resources’ Lanfranchi mine near Kambalda.

“Black Mountain has obviously got a strategy around WA nickel, it’s a good nickel province historically and there are some good assets out there,” Mr Harley  said.

“They are bullish on nickel, they make no bones about that.

He said the rising interest in nickel was similar to the lithium sector, in that the mineral was a key ingredient in the manufacture of lithium-ion batteries.

“If you go to as many mining conferences as we do, you’ve certainly heard about the battery revolution many times,” Mr Harley said.

“The nickel guys are certainly riding that wave, but nickel has a lot of other industrial applications.

“So what drives nickel is not only this battery blue sky, but also the fundamentals of a growing US economy.

“We can’t lose sight of what that actually means for commodity prices, which is a lot more important than the hype around battery cars in China.

“That provides your froth, your real excitement, and you see copper starting to move now was well.”

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