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By Melanie Burton and Scott Murdoch
MELBOURNE (Reuters) - As automakers and chemicals suppliers scramble to secure raw materials, resource-rich Australia has become a rare global bright spot with $37 billion worth of M&A deals in the first quarter, with the trend expected to continue in the near term.
The increased dealmaking activity is forecast to be mainly supported by cash-rich miners looking to expand quickly via acquisitions to tap into the rising resource demand and others looking to divest their fossil fuel portfolios, bankers and analysts said.
Newmont Corp's $18 billion bid for Australia's top gold producer Newcrest Mining last week has helped drive a 192% surge in inbound mergers and acquisitions (M&A) into Australia so far this year.
During the first quarter, there were $36.6 billion worth of announced M&A deals in Australia, as per Refinitiv data, but volatile markets and U.S. and European banking crises curtailed dealmaking elsewhere.
Australia's deal volume in the first quarter was 3.5% higher than the same period last year. In comparison, the United States fell 44%, while global dealmaking was down 48%, according to separate Dealogic data.
"A perfect storm is brewing in resources M&A," said Kam Jamshidi, a partner at law firm Herbert Smith Freehills in Melbourne. "Most powerfully, portfolio redesign for the energy transition is in full swing."
Much of the M&A has focused on Australian miners because of its stable jurisdiction, said Samy Mansour, a partner at law firm Clayton Utz, as well as its vast mineral wealth.
Australia supplies just under half of the world's lithium and is a significant producer of copper, nickel and rare earths and coal.
Newcrest's long life copper reserves added to its allure while the red metal was a driving force for BHP Group's $6.4 billion bid for Oz Minerals that was finalised this week.
SWITCH TO GROWTH
It also helps that global miners have switched into growth mode from years of austerity and handing back capital to shareholders, fund managers said.
After so many years of prioritising shareholder returns over exploration, miners are finding few options to grow beyond buyouts given the high costs and length of time for exploring and building a new mine.
"The last five years has seen an austerity drive to hand cash back to shareholders. They realise now that exploration success has been few and far between, and the optionality in the portfolios is quite limited," said Glyn Lawcock, head of resources research at investment firm Barrenjoey in Sydney.