Research by global law firm White & Case LLP has revealed that more than half (57%) of surveyed mining and metal decision-makers believe that mining equities will outperform the broader market for the third year in a row. Mining equities outperformed the broader market in 2017 for a second year, primarily due to a surge in commodity prices driven by robust global economic growth and the gathering pace of the battery revolution.
This new research demonstrates confidence that the recovery cycle is firmly established. Growth is back on the agenda with multi-year highs observed across many metals, triggering a supply response as well as a focus on true growth transactions – portfolio upgrades, acquisitions, greenfields.
John Tivey, White & Case Global Head of Mining and Metals, commented,“In 2018, mining and metals companies are pushing ahead to identify new opportunities internationally to support their forward growth strategies. We believe that the return to growth will bring opportunities for value creation, calling for mining and metals companies to prioritise resilient, multicycle portfolios that offer sustainable returns to shareholders.”
“Confidence that growth is returning is now cemented in the marketplace. The junior sector will attract new investment as exploration projects become attractive opportunities again. Rising commodity prices and global growth trends will promote asset development.”
Of the 2017 rally areas predicted to spur growth this year, more than 30% of respondents stated that the opportunities existed within M&A, while only 19% opted for IPOs. While the growth opportunities were clear, there was a tie between what the industry would choose in the next growth phase, with 42% of respondents opting for M&A, and the same figure for brownfield development. When asked what type of M&A would be prevalent in 2018, 80% said ‘opportunistic asset-driven deals,’ with only 3% expecting hostile approaches.
The survey highlighted the intensified demand for electric vehicles and storage batteries raw materials, a trend which is likely to continue, with lithium and cobalt leading the pack, closely followed by copper and nickel.
Rebecca Campbell, a partner in White & Case’s Mining and Metals practice, said, “There will be a rush by car companies to tie up supply deals with those miners producing lithium and other minerals such as cobalt – viewed as vital for EV car batteries. There is also an expectation that battery makers will increasingly look at nickel as a cheaper and easier-to-source alternative to cobalt.”
Whilst 2018 will see continuous investment in growth across the industry as demand holds and/or increases further, it is what happens in China, which consumes half the world’s raw materials, that will matter.China’s move to curb pollution has seen a reduction in the supply of aluminium, which could register a significant deficit in markets outside China.
John Tivey, White & Case Global Head of Mining and Metals, added: “We foresee China’s focus on pollution and reform to remain through 2018 and, together with producer discipline outside China, we can expect elevated commodity prices.”
Asked how they thought the Chinese market would play out this year, 34% of the survey respondents said steady growth would underpin prices, while 28% said policy changes would dampen price growth. More than 37% expected Chinese performance to be on a par with performance in 2017.
Opportunities are also seen in Africa, as more than two-thirds of respondents painted a positive picture of African commodities in 2018, with one-third (32%) seeing an ‘improving picture’ and 35% seeing ‘more of the same’ for the year ahead. Botswana specifically was by far viewed as the most favourable African territory for Western business.
In a new era of ‘smart’ mining that offers scope to boost efficiency and productivity, the deployment of blockchain technology in the global mining sector is another space to watch in 2018.
Rebecca Campbell, a partner in White & Case’s Mining and Metals practice, commented:“Advances in disruptive technologies continue to change the mining landscape. Blockchain, the technology better known for powering bitcoin, is already being used in the diamond sector, and has the potential to completely revolutionise the mining industry more broadly, with its ability to create an unchangeable record of transactions along a supply chain, ensuring secure and sustainable raw materials to end users.”
“One thing is for sure, 2018 will be anything but boring as the industry enters the next cycle with renewed confidence. The mining and metals industry is leaner and fitter than at any time since the downturn. It remains to be seen how and where its growing surplus cash pile is deployed in the next 12 months.”