The Australian M&A Outlook 2024: Energy and Resources Industry Insights

Certainly, Australian E&R continues to shine, and total deal value for the sector hit US33,767m in 2023 (up from US$16,804m in 2022, and well above the average of US$23,622m for the period 2019—2023).

The global energy transformation, including the impact of government regulations and incentives and the emphasis on sustainability and energy security, remains a key driver in 2024. The push for decarbonisation continues to fuel activity and attract investors, particularly in critical minerals, presenting opportunities despite price instability and delays in project approvals and commencements.

Several notable deals were completed in E&R in 2023. In fact, Australia’s largest corporate takeover of the year was in mining when a US gold giant acquired one of Australia’s biggest gold miners for AUD$26.2bn. BHP paid AUD$9.6bn for OZ Minerals, strengthening its critical minerals portfolio. On transaction-led transformation, the first half of 2024 brought about two major news stories; Livent and Allkem kicked off the year with a masterclass in vertical integration, merging to create Arcadium Lithium, while Whitehaven Coal closed its AUD$6.5bn purchase of the Daunia and Blackwater coal mines.

Most notable of all, however, was the deal that almost happened - the full implications of which are yet to be seen. BHP’s proposed acquisition of UK-listed Anglo American was set to be the biggest mining deal of the year. Negotiations coming to a pause had everything to do with its complexity and shows how difficult it is to get megadeals across the line. On the upside, BHP is clearly in the market for copper assets, and potentially has funding dedicated to dealmaking.   

PwC’s 27th Annual Global CEO Survey 2024 – Australian Insights highlights the extent of this pent-up demand for value through deals — with 59% of those responding indicating they are planning at least one deal within the next three years, with 34% planning three or more acquisitions in this timeframe.

How many acquisitions is your company planning to make in the next three years?

Source: PwC’s 27th Annual Global CEO Survey 2024

Looking ahead, we’ve identified three themes, rebalance, renew, and reboot, that will shape the demand for E&R dealmaking in Australia.

1. Rebalance: Softening commodity prices are (mostly) a cyclical phenomenon 

Anyone with a passing interest in commodities is aware that prices have fallen. Commodity prices were down 6.7% in Australian dollar terms over the past year, led by lower thermal coal and liquified natural gas prices.

Lithium prices have dropped to their lowest level since 2019 due to increased supply, as well as doubts about the near-term demand for electric vehicle (EV) production. Prices for spodumene concentrate (sold by most Australian lithium miners) dropped by almost 90% over 2023. But lithium’s price should be seen in context - consider that prices for Australian spodumene grew more than tenfold in less than two years prior to this. Lithium’s story is one of demand shock (thanks to demand for EVs and clean energy storage), followed by large staged increases in supply and rising competition, causing prices to bounce around. The projected demand increases from EVs and lithium-ion batteries outstrip supply growth when viewed over a longer timeframe.

Similarly, nickel was the worst-performing metal on the London Metal Exchange at the close of 2023, following a flood of nickel onto the market (including a surge in Indonesian output). This nickel oversupply is expected to last until 2027.

In other words, what we’re seeing are supply/demand imbalances, largely driven by energy transformation.

Yes, the softening of commodity prices is partly a function of macroeconomic uncertainty and geopolitical instability. Mostly, though, it’s a sign of where we’re sitting in the commodity price cycle, and this sort of volatility is to be expected in a growing market.

The point is the current price cycle downside will inevitably have an upside, and dealmakers should ideally be ready before prices rebound. Differing views of the outlook can create opportunistic bids.

2. Renew: Portfolio consolidation continues 

Consolidation continues in E&R in 2024 as companies reassess their portfolios against their strategies and make hard decisions about core versus non-core assets. The above-mentioned deal between a US gold giant and one of Australia’s biggest gold miners was a prime example of a consolidation play. In the same vein, we’ve seen a run of deals among gold miners as central bank demand drives up prices, including AUD$771m in activity from Genesis Minerals alone, while Ramelius Resources continues to pursue inorganic growth opportunities.

BHP’s bid for Anglo American was a play for high-quality copper assets. Copper is critical for low-carbon energy technologies (think: renewable energy infrastructure, energy storage, EVs, solar panels, wind turbines and power cables). Conversely, this focus on copper, would prompt the divestment of non-core assets as BHP proposed to carve out Anglo American’s South African iron ore and platinum businesses, as well as its diamond projects.

3. Reboot: Several megadeals abandoned 

It’s back to the drawing board for several dealmakers as a slew of megadeals failed to get across the line recently. Case in point is BHP’s aforementioned attempted takeover of Anglo American, but there have been plenty of others.

A leading US lithium producer’s AUD$6.6bn takeover of Liontown Resources was abandoned after another investor acquired a minority stake that effectively prevented the takeover. This same investor also interrupted Mineral Resources’ attempt to acquire a Western Australian-focused lithium miner by partnering with SQM in an AUD$1.7bn buyout. Meanwhile, an Australian petroleum exploration and production giant has walked away from an AUD$80bn merger with Santos.

Right now, leverage lies with sellers. Dealmakers face stiff competition when takeovers enter the market, especially critical mineral assets. Demand is being driven by the energy transformation, as well as the need for business model reinvention, which can be accelerated through M&A. It’s a highly competitive market. 

How then do dealmakers get megadeals across the line?  

Being prepared and acting with speed is critical. And securing stakeholder alignment and buy-in well ahead of the deal can put you ahead of the pack.