LRS General Discussion, page-19169

	How Miners Regained Their Appetite for Deals -- Analysis
1	06/09/2024 12:08PM
2	By Rhiannon Hoyle When Jakob Stausholm became chief executive of global miner Rio Tinto almost four years ago, big M&A wasn't on his mind. "I didn't feel we were ready for it," recalls Stausholm. Today, "I think we are in a different place and so we could do it." Over the first eight months of 2024, mining companies announced more than $48 billion in pending and completed deals, roughly 8% more than a year earlier, according to data provider Dealogic. It's only been bettered once since 2012 when the transfer of a $15 billion stake in China's Jiangxi Copper from one state-owned entity to another boosted the value of deals in the same period of 2022 to $58 billion. Mining companies are flush with cash after the Covid-19 pandemic prompted a wave of stimulus spending on infrastructure, which requires commodities such as steel. Investment in the energy transition, spurred by programs such as the Inflation Reduction Act in the U.S., has fed demand for copper and other critical minerals. Gold has also proved to be a popular bet, as investors seeking a hedge against geopolitical turbulence pushed prices of the precious metal to a record high. This has created an opportunity for miners to get a sugar hit from buying mines, rather than run the gauntlet of securing permits from authorities to build their own. In countries including the U.S., many projects are advancing slowly due to environmental and community concerns. But M&A comes with its own challenges. Big deals often require big premiums as BHP Group encountered when it unsuccessfully pursued a $50 billion bid for Anglo American this year. Two months later, BHP agreed with Lundin Mining to jointly acquire Canadian copper explorer Filo for roughly $3 billion. "Obviously it's an order of magnitude different in terms of the scale of the opportunity," said BHP Chief Executive Mike Henry, insisting that M&A isn't being prioritized at the world's biggest miner. The list of companies doing deals reads like a who's who of global mining. Last month, Arch Resources and Consol Energy, two of the biggest U.S. coal companies by production, agreed to combine to create a new $5.2 billion entity called Core Natural Resources. The companies said the deal would result in a stronger, more diverse coal giant to navigate evolving world energy markets. Also in August, South32 completed the sale of an Australian coal operation for up to $1.65 billion, while Whitehaven Coal struck deals to sell a 30% share in an Australian coal mine it recently acquired to a pair of Japanese steelmakers for $1.08 billion. That same month, South Africa's Gold Fields inked a deal for Canada's Osisko Mining worth about $1.6 billion, and lithium miner Pilbara Minerals agreed to buy Latin Resources in a deal that values the Australia-listed explorer at roughly $378 million. The industry appears to be spending much more time discussing deals than in years prior, said Owen Hegarty, executive chairman of EMR Capital, a specialist mining private equity firm. "And plenty more to come," he said. Still, deal activity in the sector remains off its peak. The value of pending and completed mining deals announced this year is half what it was in 2012 when a China-led mining boom led to a flurry of acquisitions. That spending spree ended with big write-downs that upset investors and made executives reluctant to pursue meaningful acquisitions for the better part of a decade. Miners say they are taking a more measured approach to dealmaking this time around. After fending off BHP, Anglo American is pushing forward with sales of several assets, including some Australian coal operations. "We expect further consolidation in coal, with a sale of Anglo's coal business possible in or before 4Q," Jefferies analyst Christopher LaFemina said in an Aug. 24 note. "More M&A in copper is likely as well." Not all deal talks have been successful. In February, miner Lynas Rare Earths said it had held--and ended--discussions with MP Materials, which operates the Mountain Pass rare-earths mine in California. The quality of a mining company's reserves is a critical part of its success, and consolidating the two rare-earths miners' assets was strategically appealing, said Lynas Chief Executive Amanda Lacaze. "What you should never do is just sit there and say, 'We're the best, forget the rest,' right? That's just stupid," she said. Rio Tinto needed more than just a strong balance sheet to return to the deal table. Stausholm took the top job in 2021 seeking to repair the miner's reputation with investors, lawmakers and indigenous groups following the destruction of two ancient rock shelters in Australia. Jefferies's LaFemina said Rio Tinto would be smart to consider large-scale M&A in copper, especially if metal prices remain under pressure for an extended period of time. Stausholm, however, said he is treading carefully. "There are good deals and there are bad deals and, unfortunately, all statistics are telling you that there are more bad deals than there are good deals," he said. "So you just have to be very, very cautious." Write to Rhiannon Hoyle at [email protected] (END) Dow Jones Newswires September 05, 2024 22:08 ET (02:08 GMT)