Merger, acquisition boom ahead
MINING market commentators believe there is a wave of sector deals coming – particularly in the battery metals space.
Henslow corporate director Andrew Woodmore told this week's IMARC conference in M
elbourne that the current lithium market was like iron ore a decade ago where Chinese steel mills took stakes in Australian players to secure supply.
"Lithium and other battery metals are seemingly scarce. The Chinese are hungry to secure supply," he said.
Kidman Resources managing director Martin Donohue told the conference that securing supply was like an "arms race".
In recent months, Chinese companies have stepped up activity in the battery metals space.
KPMG Australia partner and global lead for mining mergers Greg Evans said car electrification was driving investment.
"Like all merger and acquisition, you need external shocks to the market to activate new commodities," he said.
"I think we'll continue to see non-core commodities come to the fore."
Evans said Chinese players Ganfeng and Tianqi had already invested heavily in Australia and expected that to continue.
"I think that capital still wants to flow out of China and into our assets," he said.
On the private equity front, Pacific Road Capital and EMR Capital aren't keen on battery metals, but Resource Capital Funds will continue to be.
"We invested in lithium before it was big," RCF managing director Peter Nicholson said.
"We're trying to be ahead of the curve and not follow the pack."
On PE firms, Evans said they'd been working "discretely and professionally" in the background and had brought good processes in areas like due diligence to the sector.
EMR co-founder Owen Hegarty said his firm has a "rule of eight" when assessing investments.
EMR looks for scale, grade, simple processes, low-cost, long-life, potential upside, stable jurisdiction and an exit strategy.
"If it was easy, everyone in the industry would be doing it," he said.
Keynote speaker, Sprott US Holdings CEO Rick Rule, said we were at the start of an M&A boom.
"Hopefully it won't be a silly one like last decade, when companies were buying optionality," he said.
"Capital isn't short, intelligent capital is short.
