Pwc Deals Global Metals Deals Insights Q3 2018

PwC Deals Global Metals Deals Insights Q3 2018

M&A activity gaining back momentum, primarily driven by strategic investors

Executive summary Despite lower deal volume, total deal value increased by 78% this “Despite headwinds caused by global quarter when compared to Q2 2018. The increase in deal value trade tension and increasing interest was headlined by a $6.1 billion merger in the gold mining space. Transactions were also impacted by the rise in demand of metals rates, cash-rich corporations with such as cobalt, lithium, and nickel, as government initiatives to strategic rationales are likely to drive promote electric vehicles intensifies globally. deal activity for the rest of 2018 and The ongoing US steel and aluminum tariff issues have led foreign into 2019.” businesses to begin targeting inbound M&A in the US in order to set up direct operations. Meanwhile, China’s supply-side reform to manage overcapacity in steel production and the closure of lower- Brian Kelly end induction furnaces, are acting as headwinds for deal activity to US Metals Deals Leader add upgraded capacity in the region. PwC Strategic buyers drove deal activity despite low expected returns. And, with an aim for portfolio reorganization, major players targeted industry consolidation leading to increased transactions within country borders. Overall, M&A activity is likely to strengthen in 2019 as long as the larger global economies continue to experience relatively steady growth, particularly if global disputes begin to settle.

Trends and highlights Q3 2018 Q3 2018 Q3 2018 versus versus • Deal value in Q3 2018 was $16.1 billion, 78% greater than last Q3 2017 Q2 2018 quarter. Deal volume witnessed a quarter-over-quarter decline of Total deal value 9% to 124 deals this quarter, and decreased 27% versus Q3 2017. 179% 78% • Average deal size increased by 78% to $223.2 million this quarter, $16.1B and improved considerably by 238% compared to Q3 2017. Total deal volume • The largest deal of the quarter was the announced $6.1 billion acquisition of Randgold Resources Ltd., by Barrick Gold 27% 9% Corporation. 124

• North America, along with the Asia and Oceania region, led a Average deal size majority of the sector’s deal volume and value. $223.2M 238% 78%

Source: Thomson Reuters and other publicly available sources Highlights of Q3 2018 deal activity

Deal activity Total deal value and volume

20 250 Deal value in Q3 2018 was $16.1 billion, 78% greater than last 18 208 209 205 quarter and a 179% increase from Q3 2017. Deal volume 16 200 175 168 171 decreased by 9% to 124 deals from last quarter, which may 14 170 157 144 12 131 136 150 indicate that trade tensions continue to be a headwind for M&A 124 10

transactions. The average deal size increased quarterly by 78% $18 volume Deal 8 $16 100 to $223.2 million, and grew 238% compared to Q3 2017. Deal value ($bn) value Deal 6 $12 $9 $10 $10 $9 4 $8 $8 50 $6 $6 2 $5

0 0

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Largest transaction 4Q15 Disclosed deal value Deal volume (R-Axis) In September 2018, Canada’s Barrick Gold Corporation agreed to acquire the London-listed Randgold Resources Ltd. for $6.1 Deals by disclosed value billion. Barrick’s primary focus is to create a global gold mining 250 350

entity in Africa and the Americas. The deal results in Barrick’s 310 shareholders owning about two-thirds of the combined entity. 200 270 $223 230 150 190

150 100 $187 $153 Deal volume Deal $125 110 Megadeals* $122 $109 $105 70 50 $81 $88 $66 $73 There was one megadeal in the quarter. As noted above, the $56 30

sector saw the largest gold deal in three years, as Barrick Gold 0 -10

Average disclosed deal value ($mn) value deal disclosed Average

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Corp. announced the acquisition of Randgold Resources Ltd. 4Q15 for $6.1 billion to create a gold producer worth $18 billion. The Undisclosed <$50 mn $50 mn to $250 mn $250 mn to $1,000 mn other significant deal in the quarter was Novelis Inc.’s

announced acquisition of Aleris Corporation for $2.6 billion. Source: Thomson Reuters and other publicly available sources

Sector category analysis

Deal value of Steel and Aluminum declined by 22% and 81%, respectively, over the last quarter. The value of Other Metals increased significantly from $1.8 billion in Q2 2018 to $10.8 billion this quarter due to the Barrick Gold–Randgold deal. Deal activity in Steel and Other Metals declined by 8% and 19%, respectively, over the previous quarter while Aluminum and Iron Ore improved by 20% and 7%, respectively.

Steel Aluminum Iron Ore Other Metals 100000 Deal value ($M) 10000

1000

100

10 120 Deal volume 100 80 60 40 20

4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Source: Thomson Reuters and other publicly available sources *Megadeals are defined as deals with disclosed value equal to or greater than $5 billion USD.

PwC Deals Global Metals Deals Insights Q3 2018 2 Investor and regional deal trends in Q3 2018

Financial vs. strategic investors

Strategic investors continued to be dominant, and accounted for the 92% of deal value and 65% of deal volume this quarter. Financial buyers continued their conservative stance, and are expected to refrain from initiating major deals in the sector in the near-term.

Strategic investors Financial investors Financial investor share of M&A activity 18 Deal value ($B) 16 70%

14 60% 12

10 50%

8 40% 6 35% 4 30%

1.2

14.8

3.4

2.0

6.8

2.3

7.4

4.5

2.8

8.5

3.4

3.9

7.8

6.2 3.7

16.4 2.8

4.4

3.0

1.9

3.1

1.8 1.6 0 1.3 20% 150 Deal volume 10% 100 8%

50 0%

108 96 100 87 121 82 89 94 113 122 90 80 67 61 70 44 87 86 55 77 96 83 46 44

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 0 4Q15

Financial buyer share of total value

4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2Q18 3Q18 1Q18 Financial buyer share of total volume

Source: Thomson Reuters and other publicly available sources

Regional analysis

North America led the quarter in terms of deal value with 58%, but Asia and Oceania maintained the dominance in deal volume consecutively for 12 quarters, as it accounted for 57% of acquisitions made. China remained the leading acquirer nation with the majority of domestic deals in the sector, followed by the US. The UK and Eurozone region regained the leading position as favored target after five quarters, with 58% of deal value in this quarter. In terms of deal volume, the Asia and Oceania region maintained its significance as a target with 56% share.

Share of deal volume by acquirer region Share of deal value by acquirer region

100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20%

10% 10%

59% 59% 55% 50% 56% 49% 49% 56% 49% 54% 55% 57%

58% 89% 86% 78% 69% 48% 45% 57% 59% 88% 85% 27%

0% 0%

4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Asia and Oceania North America South America Asia and Oceania North America South America UK and Eurozone Europe ex-UK and Eurozone Africa/Undisclosed UK and Eurozone Europe ex-UK and Eurozone Africa/Undisclosed

Source: Thomson Reuters and other publicly available sources

PwC Deals Global Metals Deals Insights Q3 2018 3 Global Metals Deals Insights Q3 2018

Regional analysis (continued)

Share of disclosed deal volume by target region Share of disclosed deal value by target region

100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20%

10% 10%

58% 89% 86% 78% 47% 73% 47% 58% 57% 88% 78% 27%

61% 57% 52% 50% 52% 49% 50% 56% 50% 52% 55% 56%

0% 0%

4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Source: Thomson Reuters and other publicly available sources

Metals deals by region

UK and Eurozone Local: 58 deals, $2.06 billion Inbound: 22 deals, $6.30 billion North America Outbound: 20 deals, $39.96 million Asia and Oceania Local: 55 deals, $4.74 billion Local: 240 deals, $26.87 billion Inbound: 24 deals, $688.87 million Europe ex-UK and Eurozone Inbound: 12 deals, $111.31 million Outbound: 15 deals, $6.16 billion Local: 19 deals, $312.43 million Outbound: 17 deals, $843.05 million Inbound: 17 deals, $23.23 million Outbound: 9 deals, $42.15 million

Africa/Undisclosed Local: 6 deals, $1.67 billion Inbound: 5 deals, $0.33 million Outbound: 22 deals, $30.83 million South America Local: 4 deals, $40 million Inbound: 3 deals, $0 million Outbound: 0 deals, $0

Source: Thomson Reuters and other publicly available sources

Metals deals outlook Deal value in the Metals sector recovered in Q3 2018 compared to the This would perhaps prompt investors to expand business by acquiring previous quarter (although deal volume in Q3 2018 was the lowest of the struggling North American rivals. past 12 quarters). The value rebounded to a significant extent due to a Global industrial developments and rapidly changing technologies are $6.1 billion megadeal between Barrick Gold and Randgold Resources. also leading to disruption in demand for traditional metals. An While the ongoing tariff disputes led to margin pressure for smaller increasing focus on niche energy-related metals coupled with the producers of steel and aluminum and downstream manufacturers, it is demand for electric vehicles and battery storage may trigger an expected to open up opportunities for strategic investors who are looking increased investment in cobalt, lithium, and nickel. Further, the to consolidate and stay competitive. The US maintained its stance on prospect of higher ACES (automated, connected, electric, and shared) increased metal tariffs despite proposing USMCA (a revamped version of vehicle adoption may lead to gradual divestments in metals such as NAFTA) and allowing US companies to petition for exemptions from platinum and palladium, which are used in catalytic converters for tariffs where highly specialized metal imports (which cannot be produced curbing emissions from gasoline and diesel-powered engines. domestically) are required in products. This is likely to shape North Despite headwinds from global trade tensions and increasing interest American deal activity in Q4 2018 and 2019. rates, cash-rich corporations with strategic rationales are likely to Further, gold producers in Australia are trading on a similar price-to-cash drive deal activity for the rest of 2018 and into 2019. flow ratio and their valuations are on par with North American companies.

PwC Deals Global Metals Deals Insights Q3 2018 4 Global Metals Deals Insights Q3 2018

Top 10 Metals deals 2018 Announced Target name Target nation Acquirer name Acquirer nation Status Deal value1 Category 09/24/18 Randgold Resources Ltd. Jersey Barrick Gold Corp. Canada Pending 6,062 Other Metals

03/07/18 Bhushan Steel Ltd. India Bamnipal Steel Ltd. India Completed 5,216 Steel Xinjiang Production & Construction 03/22/18 Corps Agricultural Division Eight Xinjiang China Xiamen Unigroup Xue Co. Ltd. China Pending 4,147 Aluminum Tianshan Aluminum Plant Co. Ltd. 01/31/18 Baotou Aluminum Co. Ltd. China Aluminum Corporation of China China Pending 2,710 Aluminum 07/26/18 Aleris Corp. United States Novelis Inc. United States Pending 2,625 Other Metals 07/23/18 Mototolo Joint Venture South Africa Rustenburg Platinum Mines Ltd. South Africa Pending 1,643 Steel Inner Mongolia BaoTou Steel Union Co. 04/18/18 China Baotou Iron & Steel (Group) Co. Ltd. China Pending 1,593 Steel Ltd. Angang Group Chaoyang Iron & Steel 07/17/18 China Angang Steel Co. Ltd. Pending 883 Steel Co. Ltd. 05/16/18 Nisshin Steel Co. Ltd. Japan Nippon Steel & Sumitomo Metal Corp. Japan Pending 867 Steel 03/31/18 Electrosteel Steels Ltd. India Vedanta Ltd. India Completed 813 Steel

Top 10 Metals deals 2017 Announced Target name Target nation Acquirer name Acquirer nation Status Deal value1 Category National Titanium Dioxide Co. Ltd.- 02/21/17 Saudi Arabia Tronox Ltd. United States Pending 2,215 Other Metals Titanium Dioxide Business 06/05/17 Ilva SpA Italy AM Investco Italy Srl Italy Pending 2,031 Steel

02/21/17 Thyssenkrupp Slab International BV Brazil Ternium SA Argentina Completed 1,805 Steel

12/04/17 General Cable Technologies Corp. United States Prysmian SpA Italy Completed 1,510 Other Metals

07/10/17 Sapa AS Norway Hydro Aluminium AS Norway Completed 1,498 Aluminum 3M Co.-Communications Markets 12/11/17 United States Corning Inc. United States Completed 900 Other Metals Division 10/26/17 China Aluminum Mining Co. Ltd. China Investor Group China Completed 869 Aluminum

08/11/17 Dongbei Special Steel Group Co. Ltd. China Investor Group China Pending 842 Steel

03/20/17 China Hongqiao Group Ltd. China CTI Capital Management Ltd. Hong Kong Completed 701 Aluminum Baosteel Group Xinjiang Bayi Iron & 09/14/17 China Xinjiang Ba Yi Iron & Steel Co. Ltd. China Completed 668 Steel Steel Ltd.-Assets

Top 10 Metals deals 2016 Announced Target name Target nation Acquirer name Acquirer nation Status Deal value1 Category

01/04/16 Liaoning Zhongwang Group Co. Ltd. China CRED Holding Co. Ltd. China Pending 4,656 Aluminum

09/23/16 Wuhan Iron & Steel Co. Ltd. China Baoshan Iron & Steel Co. Ltd. China Completed 4,157 Steel

04/14/16 Ultimate Century Investments Ltd. China Shougang Holding Bonds Ltd. China Completed 2,456 Steel Shandong Iron & Steel Group Jigang 12/24/16 Shandong Iron & Steel Co. Ltd.-Assets China China Completed 2,313 Steel Plate Co. Ltd. 10/28/16 Simfer SA Guinea Chinalco Mining Corp. International China Pending 1,300 Iron Ore Bohai Harvest RST Shanghai Equity 11/15/16 TF Holdings Ltd. Dem Rep Congo China Completed 1,187 Steel Investment Fund Management Co. Ltd. 11/08/16 Solb Misr Co. Egypt National Service Projects Organization Egypt Completed 1,135 Steel ABB Ltd.-High Voltage Cable System 09/21/16 Switzerland Nkt Cables Group GmbH Germany Completed 794 Other Metals Business 05/13/16 Nisshin Steel Co. Ltd. Japan Nippon Steel & Sumitomo Metal Corp. Japan Completed 697 Steel

02/01/16 Vallourec SA France Investor Group Japan Completed 652 Steel

Source: Thomson Reuters and other publicly available sources ¹ In Million USD

PwC Deals Global Metals Deals Insights Q3 2018 5 About PwC’s Smart deal makers are perceptive enough to see value others have missed, flexible enough to adjust for the unexpected, aggressive enough to win Deals Practice favorable terms in a competitive environment, and circumspect enough to For a deeper discussion on deal envision the challenges they will face from the moment the contract is signed. considerations, please contact one of But in a business environment where information can quickly overwhelm, the our practice leaders or your local Deals smartest deal makers look to experienced advisors to help them fashion a partner: deal that works.

Brian Kelly PwC’s Deals group can advise metals companies and metals-focused private US Metals Deals Leader equity firms on key M&A decisions, from identifying acquisition or divestiture Cleveland, Ohio candidates and performing detailed buy-side diligence, to developing [email protected] strategies for capturing post-deal profits and exiting a deal through a sale, 216-875-3121 carve-out, or IPO. With more than 20,000 deals practitioners worldwide, we can deploy seasoned teams that combine deep metals industry skills with Mike Tomera local market knowledge virtually anywhere your company operates or US Metals Leader executes transactions. Pittsburgh, Pennsylvania [email protected] Although every deal is unique, most will benefit from the broad experience we 412-355-6095 bring to delivering strategic M&A advice, due diligence, transaction structuring, M&A tax, merger integration, valuation, and post-deal services. Jock O’Callaghan Global Metals Leader In short, we offer integrated solutions, tailored to your particular deal situation Melbourne, Australia and designed to help you extract peak value within your risk profile. Whether [email protected] your focus is deploying capital through an acquisition or joint venture, raising +61 3 8603 6137 capital through an IPO or private placement, or harvesting an investment through the divesture process, we can help. Dr. Nils Naujok Europe, Middle East and Africa Leader For more information about M&A and related services in the global metals Berlin, Germany industry, please visit www.pwc.com/us/deals or www.pwc.com/us [email protected] +49 30 88705855 About the data

The information presented in this report is an analysis of deals in the global metals industry. Deal information was sourced from Thomson Reuters and includes deals for which targets have an SIC code that falls into one of 30 metals industry groups. Certain adjustments have been made to the information to exclude transactions which are not specific to metals or incorporate relevant transactions that were omitted from the SIC industry codes. This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between October 1, 2015 and September 30, 2018, with a deal status of completed, partially completed, pending, pending regulatory and pending completion, and excludes all rumors and seeking buyers. Additionally, transactions that are spin-offs through distribution to existing shareholders are included. Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.

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