Is mining ready for a new wave of mega-mergers?

T.he defines The last wave of merger deals in mining never happened. bhp Billiton’s audacious 2008 bid for rival Rio Tinto, a $150 billion bid to form a commodity supergroup, was fueled by the debt of the commodity “supercycle” of the 2000s. captured the spirit of When China’s growth slowed and miners’ capital spending peaked, things went back to normal. The industry has atoned for its sins by cleaning up its balance sheets and returning record amounts to shareholders. Years of discipline, soaring commodity prices and the prospect of an explosive demand for ‘green’ metals have made mining bosses once again dreaming of fantastic deals. The high cost and risk to develop and the relatively low valuations of companies in this sector mean that buying looks more attractive than digging. Last year, the mining boss shook hands at a rate not seen in his decade, as deals in other sectors faltered.

Now the matter has reached a feverish pitch. On April 26, Teck Resources announced in advance of its scheduled shareholders’ meeting that it was revoking its shareholder vote on restructuring time. The proposal, announced in February, would split the Canadian mining company in two, spinning off the company’s steel-making coal business and leaving its copper and zinc operations behind. ruined Tech’s vision with a unilateral proposal to merge the companies and end the merged coal business. After weeks of courting the Canadian company’s shareholders, Teck gave in. Perhaps because enough shareholders are convinced that it is in their best interest to sell the company. Teck says he returns to the drawing board to conjure up a “simpler, more direct separation”. That may not be enough. A bolder Glencore could improve its offer in the coming days to capture shareholder fears over tech management’s strategic missteps. If not, there’s no shortage of potential buyers waiting.

Still, any transaction will be much smaller than the largest transaction that occurred in the previous cycle. The specter of past deals may still dampen the willingness of today’s bosses who were once just senior middle managers to part with their cash buffers in larger partnerships. Valuing mining companies is as difficult as predicting future prices for the commodities they produce, and overpayments can spell disaster. His more than $14 billion write-down in 2013 prompted Rio Tinto boss Tom Albanese to sell Canadian aluminum maker Alcan untimely in 2007, when he lost $38 billion. and lost that job after the acquisition failed. Coal mines in Mozambique.

Supercycles of the past may have been full of warnings, but today’s bosses face something different. China has consumed a lot of coal and iron ore, but this time copper and other non-ferrous metals will play a major role. Bulls argue that the lack of mining means there will soon be a shortage of red metal as the Chinese economy reopens and the US economy remains resilient. Looking ahead, some are even more optimistic. According to analysts at bank Goldman Sachs, demand for copper in “green” industries, due to increased sales of electric vehicles, for example, will provide nearly half of this decade’s additional demand. No wonder mining companies are not satisfied. In December, Rio Tinto acquired half of Turquoise Hill, which he didn’t already own, for his $3.1 billion. Earlier this month, shareholders of Australian mining company Oz Minerals approved a $6.4 billion acquisition of him by the company. bhpNewmont’s proposed acquisition of Newcrest for about $20 billion will boost copper production at the world’s largest gold miner.

Sometimes the problem is making shareholders aware of mines the company already owns. A company that has established itself as Green Metal’s “pure play,” which means that the company focuses on his one thing, is becoming increasingly attractive to investors. This is the key rationale behind Glencore’s plan to create ‘GlenTeck’ from the metals businesses of both companies. Brazil’s mining giant Vale, which derives most of its profits from iron ore, is also considering spinning off its base metals business. As institutional investors consider the environmental impact of their portfolios, parting with the dirtiest assets such as thermal coal becomes more compelling. Anglo American said he will exit the South African thermal coal business in 2021. His new company, Thungela, has more than quadrupled his share price since going public in Johannesburg.

black to green

Mining bosses are used to negotiating with governments about revenues from their mines, but they should expect rising protectionism to clash with their trading ambitions. pressure is nothing new. In 2008, China’s state-owned mining company, Chinalco, launched a “dawn raid” on Rio Tinto shares in an attempt to thwart a potential partnership with Rio Tinto. bhp (This deal would have created an uncomfortably strong supplier of iron ore to the country.) In 2010, Canadian authorities came to power by using the Canadian Investment Act to block it. bhpacquired Potash, a fertilizer mineral miner of the same name, in a $39 billion bid. It is a challenge to any takeover to face factions inside and outside of Teck’s shareholder register that want to keep the company in Canadian hands.

As the lines between economic and national security interests become increasingly blurred, countries are stepping up investment screening regimes, with an increasing focus on minerals critical to the energy transition. Related efforts to redesign supply chains through large-scale industrial policy initiatives, such as the U.S. Inflation Reduction Act, are also creating demand for commodities and will spark trade of their own. The upcoming mining consolidation boom can be seen as the first wave of the transition to the environment. The other is watching a deal-obsessed industry liberate after a decade of doing nothing. Either way, the starting gun was fired.■

Read the article by Schumpeter, a columnist on global business.
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