Coal and iron ore dominated mining takeovers in 2017, Thomson Reuters data shows, with buyers favouring the heavily polluting devil they know over the uncertainties of a battery-powered future.
While the biggest deal was in Brazil, China was a top player despite planning to reduce domestic coal and steel-making to tackle smog in its cities. Elsewhere, miners haunted by the overpriced mega-purchases they made before the commodities crash of 2015 hesitated on deals involving the metals needed to run electric cars.
Mining deals totalled $96.8 billion, based on 2,109 mostly modestly-sized transactions in the past year, Thomson Reuters Deals Intelligence showed. That marked a 10% increase in value from 2016 but fell far short of $150-$200 billion totals in the boom years, after which miners had to write billions of dollars off the value of their assets.
More than $92 billion of the 2017 total was spent on coal, iron ore and steel deals as investors stayed loyal to a sector that still generates steady profits despite the global drive to reduce pollution.
Analysts predict continued demand, even though coal is the biggest source of the carbon emissions that the 2015 Paris Agreement aims to curb. Steel-making, which uses iron ore and coking coal, accounts for an estimated seven percent of industrial direct CO2 emissions, industry figures show.
For the mining sector, the minerals offer an established way of making money when ultra-low official interest rates mean relatively cheap funding is available to purchase assets.
“If you are a buyer, maybe you think you can squeeze some cost out of it thanks to the low cost of capital,” Brewin Dolphin equity analyst Nik Stanojevic said, adding that emerging markets such as China and India will continue to rely on coal for years to come.
Demand from these huge and growing economies will help to counter the trend against fossil fuels.
Norway’s sovereign wealth fund has proposed dropping oil and gas companies from its benchmark index while Britain said on Friday it will set an emissions limit on coal-fired power stations from 2025, forcing them to close unless they use carbon capture technology.
China is pushing to limit consumption of coal, which is used to produce most of its electricity. But its coal output will still be around 3.9 billion tonnes a year by 2020 and on Friday it announced plans to create several “super-large” mining companies by then.