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Good time to buy into WA mining services

28 May 2019

Justin Boyce Cam , Partner, Corporate Finance |

There is anticipation building in the Western Australian mining sector with large projects recently announced by Rio Tinto, Fortescue Metals Group, BHP, Chevron and in the Lithium sector, triggering the expectation of a multi-billion dollar resources construction pipeline in the state.

Right now we see miners spending again, adding equipment and /or upgrading their fleet. This increased activity is providing the right environment for businesses looking to sell. It’s also attracting private equity firms looking to divest assets acquired during the boom.

With 70 per cent of 2018 takeovers concentrated in the mid-market and the value of acquisitions between $10 million and $250 million, this is where the majority of M&A activity is occurring. Likely targets are mature businesses generating revenue, with interest coming from local investors looking to expand and international investors looking to enter the Asia Pacific market.

On the back of the impending US-China trade war, US investors seeking alternative markets are expected to lead inbound M&A activity, with mid-tier Australian companies the clear target for investors seeking to enter the Asia-Pacific market. Given the stability and comparatively lower pricing of the Australian market, it provides an attractive investment alternative for US companies already operating in China.

Some miners, cautious from the recent downturn, appear to be leasing their requirements from service companies rather than purchasing the assets, allowing the tier-1 mining service providers the opportunity to expand their operations, with Monadelphous, Lycopodium and SMS Services all recently being awarded contracts in the lithium and gold sectors. Tier 1 mining services operations will potentially look to expand, with companies operating complimentary businesses. This appears to be an effective strategy for the likes of NRW.

A rapidly growing area of interest is the Lithium sector. Energy targets have boosted demand for the commodity as it is a key ingredient in the production of batteries used to store power for electric vehicles, households and utilities.

This is an exciting time for WA, as we currently export over 50% of the world’s hard rock lithium concentrate. With five refineries in the pipeline, including the Tianqi facility, expected to be the largest lithium hydroxide plant in the world, WA has the potential to become a global hub for processing and manufacturing green batteries. This will have a positive impact on supporting industries in the state and should stimulate activity in the sector with new services companies potentially being established and prominent services companies looking to bolster their operations.

BDO’s transaction advisory services help evaluate, plan and manage transactions such as acquisitions, mergers, divestments and strategic alliances. An independent opinion is a crucial component of successful transactions. Contact Justin Boyce Cam [email protected] or Todd Grover [email protected] to discuss further.