Mining executives are urging caution as forecasts suggest the industry may be on the brink of a mergers and acquisitions (M&A) boom. They warn against repeating the costly mistakes of the past, such as the disastrous acquisition made by Rio Tinto’s (ASX:RIO) former CEO, Tom Albanese.
Albanese was ousted in 2013 following Rio’s $38 billion purchase of Canadian aluminium company Alcan in 2007. The deal led to $30 billion in write-downs after aluminium prices plummeted. “A lot of deals were made between 2005 and 2012, and many of them turned out to be really bad,” Rio Tinto CEO Jakob Stausholm told the Financial Times. “I have no fear of missing out.”
Mark Bristow, the CEO of Barrick Gold, echoed Stausholm’s sentiment, warning that the industry could overextend itself again by overpaying for assets.
The discussion around a potential surge in M&A activity comes after major mining companies have strengthened their balance sheets to recover from the 2015 commodity crash. Investment bankers suggest that the drive behind this potential M&A wave is the desire to secure supplies of metals essential for clean energy, which are expected to be in short supply in the future.
Copper is predicted to be the most sought-after commodity, as it is crucial for renewable energy, power grids, and electric vehicles. Others believe that a decline in spending on developing new mineral supplies is setting the stage for increased dealmaking.
Michael Rawlinson, a former investment banker and now chair of Adriatic Metals, suggests that this reduction in spending could lead to supply shortages, which would trigger a rebound in prices and profits, fuelling M&A activity. He recalls the market bottom in 2000, which coincided with the bursting of the last tech bubble. “Here we are in 2024, possibly facing another tech bubble burst, with unrelenting demand growth for resources, but no significant investment in projects to bridge the gap,” he added.
Some major players have already begun making moves in the M&A space. Last month, Swiss commodity trader Glencore completed its acquisition of a majority stake in the coal assets of Canada’s Teck Resources for $6.9 billion. Meanwhile, BHP attempted to acquire Anglo American, though its £39 billion bid fell through in May. Additionally, BHP recently purchased Canadian exploration company Filo Corp for $3 billion, while Anglo American is undergoing a breakup by auctioning its metallurgical coal mines in Queensland, its De Beers diamond subsidiary, and spinning off its platinum metals unit.