M&A activity in lithium, cobalt, copper to pick up, EY report says

Merger and acquisition activity in lithium, copper and cobalt is expected to feature high on the agenda of management teams across the industry given the buzz around new world critical minerals, according to a report by consultancy group EY.

February 22, 2018

Environmental regulations and the electric vehicle (EV) revolution ignited various players to consider investment into the future supply of commodities used in battery technology, and continued pressure to reduce the reliance on fossil fuels will lead to further divestments or spinoffs, the report noted.

“As a result, lithium and cobalt assets across the world have seen increased interest from diversified miners and niche players alike, as well as from financial investors,” the report said.

“Focus remains on quality of assets, and 2018 will likely see a handful of larger transactions in anticipation of greater competition for the commodities of the future,” EY added.

Many of the world economies are introducing measures to reduce the reliance on internal combustion engines. In response, car manufacturers have been shifting their focus to the development of EVs and investing in battery technology

According to EY, there will also be increased interest from car manufacturers looking to invest in mines to source materials for their EVs.

Already, Toyota has indirectly invested in Australian-listed lithium producer Orocobre through its trading arm Toyota Tsusho, while Chinese car firm Great Wall Motors Company invested in Pilbara Minerals, an upstream lithium supplier, to support its lithium-tantalum project via offtake agreements, equity and debt finance.

EY said that investors in lithium are expected to prioritize South American and Australian assets, considered to be of lower political risk. The supply of lithium is not as constrained as that of cobalt and is extracted from hard rock in Australia and from brines in South America.

“Future lithium pricing will be quality-led and likely to go through demand cycles,” the report added.

Cobalt faces significant supply challenges due to the location of mineral deposits and the limited number of mines coming online. Cobalt supply is heavily reliant on the Democratic Republic of Congo (DRC), which produces 65% of global supply and holds almost half of the world’s reserves.

“However, political instability in the DRC and the challenge of ethically sourcing cobalt have made it a less attractive but still necessary investment region,” EY said.