MERGER and acquistion activity in the mining industry could be about to take off again – a a prospect about which some company CEOs are cautious.
“A lot of deals were made between 2005 and 2012 and a lot of these turned out to be really bad,” Jakob Stausholm, CEO of Rio Tinto told the Financial Times. “Now it feels like things are opening up a little bit . . . but from the Rio Tinto perspective, that’s not that relevant: I have no fomo, or fear of missing out.”
The groundwork is potentially being laid for dealmaking, said the newspaper. It cited under-spending on new minerals supply owing to a paucity of capital. This drop in spending could lead to supply shortages, prompting a rebound in prices and profits that in turn provides the ammunition for M&A.
The last time this happened was in 2000 which also coincided with the end of the last tech bubble, according to Michael Rawlinson, a former investment banker and now chair of London-listed silver and zinc miner Adriatic Metals.
“Here we are in 2024 with possibly another tech bubble breaking, a backdrop of unrelenting demand growth for units, but nobody in the west has spent the money on projects to fill the gap,” he told the FT.
While there has been evidence of some dealmaking – Swiss commodity trader Glencore last month completed its acquisition of a majority stake in the coal assets of Canada’s Teck Resources for $6.9bn, while BHP swooped for Anglo American – the market is not encouraging of metals demand currently.
“Sentiment towards commodities is quite low as optimism of stimulus in China has worn out,” said Sabrin Chowdhury, commodities analyst at BMI. “This year the miners are still quiet because of the lower metal prices.” Deals were tricky due to lower earnings off the back of falling metal prices and inflation. This makes new mines more expensive to build and raises the cost of the assets, she said.
Falling prices for commodities, such as iron ore, copper and aluminium, is likely to deter dealmaking rather than encourage it, according to some bankers.
