M&A on the rise in mining industry

M&A on the rise in mining industry

Dealmaking in the mining industry just became hotter this year after an unsolicited proposal to combine two of the world’s top senior gold producers—a merger that could turn into the biggest gold mining sector acquisition ever.  Newmont Corporation’s bid to acquire 100% of Australia’s Newcrest Mining—rejected by the takeover target at this point—sparked talk about a new wave of consolidation in the mining sector, driven by high gold prices and the pursuit of supply of key metals for the energy transition, including copper and lithium.

Analysts and industry professionals expect mining companies to accelerate M&A activity this year.

Following Newmont’s $16.9 billion bid, Newcrest’s board unanimously rejected the offer “as it does not represent sufficient value for Newcrest shareholders,” but said that it was ready to provide non-exclusive access to some limited non-public information “in order to determine if Newmont can provide an improved proposal for consideration by the Board that appropriately reflects the value of Newcrest.”

Regardless of whether Newmont will submit a higher offer for Newcrest, the mining industry is set for a new wave of consolidation, industry executives say.

This year is likely to see more mergers in the gold mining sector, Endeavour Mining’s President and chief executive Sébastien de Montessus told Reuters in an interview last month, days after news broke of Newmont’s mega-merger proposal.

“I think we will probably see more [deals], simply because some companies are lacking a clear strategy,” de Montessus told Reuters.

“You’ve got historical companies like IAMGOLD, Gold Fields, AngloGold, Kinross, where there are a lot of questions about whether their portfolio is well-suited, and whether their strategy is clear enough for investors and shareholders.”

More mergers and acquisitions in the gold mining sector are inevitable as companies will look to replace depleting assets, Harmony Gold’s CEO Peter Steenkamp told Reuters this week.

It’s not only the gold sector that is ripe for consolidation, according to industry professionals.

Alex Christopher, president of the Prospectors & Developers Association of Canada (PDAC), told Bloomberg that a lot of the associations’ small to medium-sized firms would be looking for growth through deals.

“Clearly a lot of them look to M&A for growth, though. They’re often trying to discover assets that a bigger company would later take on,” Christopher told Bloomberg ahead of the world’s premier mineral exploration and mining conference in Toronto beginning on March 5.

Weeks before the conference, several major mining deals were announced or completed. Rio Tinto, for example, has completed its acquisition of Turquoise Hill Resources for around $3.1 billion, significantly strengthening Rio Tinto’s copper portfolio. B2Gold has agreed to buy Sabina Gold & Silver Corp and its gold-mining project in Canada, while mining giant BHP could be close to its biggest acquisition in over a decade with the proposal to buy Australian copper-gold producer OZ Minerals.

Companies are adding more copper assets in view of an expected copper supply crunch in the energy transition. A huge shortage of copper is looming, mining and commodities giant Glencore said at the end of last year, reiterating warnings from other industry players and analysts that a supply crunch could slow the energy transition.

Growing efforts at decarbonization are raising demand for key metals such as lithium, cobalt, copper, and nickel.

The energy transition was the key driver behind 25% of the top 20 mergers and acquisitions (M&A) deals in mining in 2022, as the industry responded to consumer and shareholder demand for portfolio diversification and sustainability, data and analytics company GlobalData said in a report last month.