M&A activity in mining and oil & gas
We are pleased to share a review of M&A activity in the mining and oil & gas industries, across the Asia Pacific region in FY2016
Combined deal value drops by half
The value of M&A activity in the Asia Pacific region’s mining and oil & gas industries fell by approximately 50% to a total of A$53.37 billion in FY2016, compared with a total of A$104.44 billion in the year prior, according to data sourced from Mergermarket.
By volume, there were 143 deals (127 with disclosed values) compared with 207 deals (168 with disclosed values) in FY2015.
The overall fall was driven by a sharp decline in the value of M&A activity in the mining sector, which dropped to A$9.53 billion from A$29.71 billion in FY2015, a decrease of close to 70%.
Despite the ASX200 Resources Index increasing by 12.24% in the past six months, it is overall still down 16.13% since this time last year.
On reflection, the negative sentiment that deal makers have been feeling throughout the year seems more than justified.
Looking to the year ahead
Performance across the natural resources space has been anything but uniform. We would expect M&A activity to be equally variable, but trending upwards as we move into FY2017.
Against the backdrop of soft commodity prices and uncertainty about the economic outlook, which seems set to continue, we can expect to see a continued 'stop-start' effect on deal flow and completion.
This is further impacted by uncertainty created by the United Kingdom's decision to leave the European Union, and its influence on equity markets.
Mining in review
Asia Pacific wide
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| Total deals | 87 | 121 | 119 |
| Total deals with disclosed value | 80 | 99 | 111 |
| Total value |
A$9,531m |
A$29,712m | A$23,518m |
Australia
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| Total deals |
40 | 47 | 54 |
| Total deals with disclosed value |
34 | 40 | 49 |
| Total value |
A$2,589m |
A$19,375m | A$5,690m |
Activity across the Asia Pacific mining sector dropped to A$9.53 billion from A$29.71 billion in FY2015, a decrease of close to 70%. The number of mining deals in fell from 121 to 87 in the same period.
From an Australian perspective, the impact was more pronounced, with the total value of mining transactions only A$2.59 billion in FY2016, down from A$19.38 billion in the previous financial year.
Despite this substantial fall, companies exposed to gold and battery-related metals like lithium and graphite have been strong recent performers. We are seeing that investors are willing to support growth strategies in these areas, however high valuations can present challenges for buyers.
Iron ore and coal markets continue to face challenges, and there appears to be no sign of a quick recovery. However, divestments by the majors and pressure on balance sheets will continue to present opportunities. We have seen companies managing both geographic and operating exposures, in order to maintain profitability in the future.
Furthermore, with a current gold price of US$1317/oz, projects in this sector provide an attractive return for those looking to maximise or diversify their exposure, or realise immediate value. This is reflected with two out of the top five Australia mining deals relating to this 'safe-haven' commodity.
TOP 5 ASIA PACIFIC DEALS
by value as announced
| A$1072m | EMR Capital and Farallon Capital Management led consortium's acquisition of a 95% stake in the Martabe gold and silver mine from G-Resources Group Ltd. |
| A$987m | Inner Mongolia Xingye Mining Co Ltd's acquisition of Xuwuzhumuqin Yinman Mining Co Ltd's lead, zinc and silver mining operations in Inner Mongolia. |
| A$869m | New Hope Corporation Limited's acquisition of a 40% stake in the Bengalla Coal Mine from Rio Tinto Limited. |
| A$823m | Yintai Resources Co Ltd's acquisition of a 95%, 90% and 70% respective stake, in White Mountain mine, Tanjianshan mine and the Eastern Dragon development project from Eldorado Gold Corporation. |
| A$389m | China National Gold Group Corporation's acquisition of an 82% stake in the Jinfeng gold mine from Eldorado Gold Corporation. |
TOP 5 AUSTRALIA DEALS
by value as announced
| A$869m | New Hope Corporation's acquisition of a 40 per cent stake in the Bengalla Coal Mine from Rio Tinto Limited |
| A$320m | MACH Energy Australia's acquisition of the Mount Pleasant thermal coal asset from Rio Tinto Limited. |
| A$188m | Galaxy Resources Limited's acquisition of General Mining Corporation Limited by way of a members' scheme of arrangement. |
| A$161m | The creditors of Atlas Iron Limited's acquisition of a 70% stake in Atlas Iron Limited by way of a creditors' scheme of arrangement. |
| A$101m | Sekitan Resources Pty Ltd's acquisition of the Wilkie Creek Mine coal mine and associated assets from Peabody Energy Corporation. |
Asia Pacific wide
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| Total deals | 56 | 86 | 79 |
| Total deals with disclosed value |
47 | 69 | 68 |
| Total value |
A$43,836m |
A$74,722m |
A$31,816m |
Australia |
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| Total deals |
16 | 21 | 24 |
| Total deals with disclosed value |
13 | 16 | 19 |
| Total value |
A$7,556m |
A$14,610m |
A$12,555m |
In the oil and gas industry, the value of M&A fell by 41% to A$43.84 billion in FY2016 as the number of transactions fell from 86 in FY2015 (69 with disclosed values) to 56 in FY2016 (47 with disclosed values).
The magnitude of the fall in the oil price experienced since late 2014 caught most oil and gas companies off guard and it is only recently we have started to see M&A activity return in the Asia Pacific region. Much of the M&A focus has been on cost competitive jurisdictions, such as PNG.
Our recent research report released in late May, From Survival To Growth In A New Era, revealed that respondents expected M&A volume to rise by 50% this calendar year, compared with 2015, although there is uncertainty as to which direction the oil price will go.
The report further identified that 83% of companies expect a 'substantial' increase in M&A activity in the next three to five years. The Asia Pacific region could potentially benefit from this expected uplift, with 31% of companies expecting to pursue their next investment in the region, followed by Africa (22%), Europe (19%) and the Americas (15%).
TOP 5 ASIA PACIFIC DEALS
by value as announced
| A$13,233m | PetroChina Pipelines Co Ltd's acquisition of the remaining 50% stake in PetroChina United Pipelines Company Limited from a group of investors. |
| A$7,076m | PetroChina Pipelines Co Ltd's acquisition of a 48% stake in PetroChina Northwest United Pipelines Co Ltd from a group of investors. |
| A$3,156m | Kunlun Energy Co Ltd's acquisition of PetroChina Kunlun Gas Co Ltd from PetroChina Company Limited. |
| A$2,964m | Oil Search Ltd's bid for the acquisition of Interoil Corp. |
| A$2,745m | BHP Billiton Ltd, BP Plc, Chevron Corporation, Royal Dutch Shell Plc, Woodside Petroleum Limited's (16.67% respectively) and Mitsui & Co Ltd and Mitsubishi Corporation's (8.33% respectively) acquisition of the Greater Western Flank Phase 2 gas field development project. |
TOP 5 ASIA AUSTRALIA DEALS
by value as announced
| A$2,745m | BHP Billiton Ltd, BP Plc, Chevron Corporation, Royal Dutch Shell Plc, Woodside Petroleum Limited's (16.67% respectively) and Mitsui & Co Ltd and Mitsubishi Corporation's (8.33% respectively) acquisition of the Greater Western Flank Phase 2 gas field development project. |
| A$1,782m | QIC Limited led consortium's acquisition of the Iona gas storage facility from EnergyAustralia Pty Ltd. |
| A$1,005m | ENN Ecological Holdings Co Ltd's acquisition of an 11.72% stake in Santos Ltd from Hony Capital Co Ltd |
| A$520m | Mitsui E&P Australia Pty Ltd's acquisition of a 35% stake in the Kipper gas field from Santos Ltd. |
| A$500m | Hony Capital Co Ltd's acquisition of a 6.61% stake in Santos Ltd. |
127 disclosed value deals valued at A$53 billion of 143 total deals announced - a 50% decrease in total value from FY15
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