Capital Flows Out Of Gold Mining Into Cobalt, Steel, Lithium
(Kitco News)- The gold sector could see asupply crunch on the horizon as investment capital flows into other metals,according to a report from EY.
The report from the researchfirm shows that value of merger and acquisitions in the mining sector increased15% in 2017; however, the number of transactions declined by 6% last years.
“Last year we saw fewer dealsbut at better values. In 2018, we expect to see more deals supported byinvestment-led strategies to diversify by commodity or region. Some of thisactivity will be to shape portfolios for future growth and sustain shareholderreturns,” the analysts wrote. “In 2018, we expect stronger demand for financingand flexibility to remain important as the sector seeks to maintain a balancedand efficient capital structure.”
Specifically, in the goldmarket, EY noted that M&A activity declined by 13% with the value ofactivity falling by 34% last year. For lead zinc and silver projects, financingactivity dropped 17% with the value increasing 32%.
While gold is suffering from alack of financing, EY said that with the growth in electronic vehicles isincreasing demand for specialty metals like cobalt, and lithium.
“With the buzz around newworld critical minerals and battery technology, deals in lithium, copper andcobalt are expected to feature high on the agenda of management teams acrossthe industry,” the analysts said. “The desire to shift from higher to lowerrisk jurisdictions may also influence portfolio adjustment, particularly forprecious metals.”
EY also noted that the source of funding for themining sector appears to be shifting. For the last two years industryparticipants accounted for nearly 70% of the financing deals; however, lastyear financial investors accounted for 22.4% of the transactions made lastyear, its highest level since 2015.
By Neils ChristensenFor Kitco News
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