Mega Miners Resume Deal-Making After 10-Year Hiatus

In the early 2000s, the commodities boom led to a wave of hostile takeover bids, massive mergers and vicious bidding wars among the world's biggest mining companies. These companies earned a reputation as bold, risk-taking dealmakers.

Then the mining industry took a turn for the worse. A series of disastrous transactions led to balance sheets being shredded, bosses getting fired, and investors being furious. As a result, miners have focused on mining and mega deals have mostly dried up over the past decade.

Now that they have repented, their penance is over.

The mining industry is seeing a return of large-scale mergers and acquisitions, according to conversations with executives at major mining companies and the bankers who advise them. The industry is flush with cash after last year's record profits, and boards and managers believe they have the support of key investors to avoid the reckless overspending of the last cycle.

After announcing a $6.4 billion copper purchase last month, BHP Group is interested in even bigger deals. Rio Tinto Group is actively looking for lithium acquisitions. Glencore Plc's chief executive said last month that the company is focused on "strategic" opportunities that build on existing connections. Last week, Saudi Arabia's state mining company announced a new venture to invest in overseas assets.

The mining sector is in the midst of a major strategic shift, as the world's largest producers move away from fossil fuels and into commodities like copper, nickel and lithium that will be essential for decarbonizing the global economy. This shift is the biggest since the China-led supercycle at the start of this century, and it is sure to have a major impact on the global market.

BHP and Rio Tinto have already made moves to increase their copper production, with both companies announcing major deals last year. This is likely to continue in the coming years as demand for the metal increases.

BHP executives believe that the agreement to buy OZ Minerals Ltd. has reestablished the company's credentials among shareholders. This deal proves that BHP can get a deal done without overpaying, and paves the way for even larger transactions in the future.

The largest mining company has already expanded its dealmaking team in London and is interested in pursuing a transformational deal, Bloomberg reported last year. The company has recently exited oil and gas and vowed to end thermal coal mining by the end of the decade. To replace those businesses, it is looking to expand in copper and nickel and grow a fertilizer business.

BHP is interested in the possibility of deals with companies such as Canadian fertilizer producer Nutrien Ltd. and US copper giant Freeport-McMoRan Inc., according to some people.

Nutrien's mines and infrastructure are located near BHP's Jansen project. The two companies have been seen as a natural fit for a partnership, and they held talks about a potential partnership two years ago.

Freeport is the world’s largest publicly traded copper producer. The company is expanding production at a time when the world’s biggest mining companies are all pushing for growth.

Teck Resources Ltd., another large copper producer, is controlled by the Keevil family through a dual-class share structure. However, the family could make the business more appealing to potential buyers or partners by selling or merging part of the company.

The renewed focus on dealmaking comes as the miners themselves are receiving increased attention from both governments and investors. This is due to the uncertainties created by Russia’s invasion of Ukraine, which has helped spur worries about security of supply and driven up commodity prices. Metal markets are tight, with above-ground supplies for several metals at the tightest in recent history. China’s reopening from Covid-19 lockdowns is threatening to jolt global demand, which could have a long-term impact on the global drive to decarbonize.

Even though many miners are trading at or near record prices, this could dampen dealmaking unless a global recession leads to lower commodity and equity prices. The big producers are also continuing efforts to refine their existing asset portfolios while they seek growth.

The mining industry has been warning for years that there aren't enough copper projects to meet future demand. Most of the major miners are keen to grow output by expanding existing mines or through exploration and building new ones. However, big deals often don't bring on new production unless fresh capital can be deployed.

Rio Tinto made a big purchase last year, taking full control of Turquoise Hill Resources Ltd. in a $3.2 billion deal. The takeover was messy, with a vote postponed three times as Rio sought to win support from dissident shareholders. However, executives believe it showed investors that Rio can hold its nerve to resist the reckless spending that characterized its past dealmaking.

New Chairman Dominic Barton said at a conference in October that he believed the company had missed opportunities in recent years, in part because of concerns about investors’ reaction to previous missteps.

Rio Tinto is now focusing on making deals in the lithium market. The company has asked major investment banks for pitches on lithium miners and is actively looking for deals.

Glencore, which has been known for its aggressive dealmaking in the past, has been quiet in recent years and has instead chosen to sell many of its smaller assets.

Speaking to investors last month, CEO Gary Nagle emphasized that its focus would be on targets where it had existing relationships or shareholdings, or assets that were nearby its existing operations. This focus will help the company to continue to grow and expand its reach.

"We will be looking for opportunities that are strategic for Glencore, where we have some sort of competitive advantage," Nagle said. "These may be situations where we already have a shareholding or existing partnerships with the current owners. We want to be strategic about our M&A activity and not just go for the highest bid."

Glencore sees opportunities in aluminum, which the commodities trader buys and sells for others but does not produce itself. The company has looked in the past at a deal to buy US producer Alcoa Corp. Last year, it held discussions with Noble Group to buy Jamaican alumina refinery Jamalco, but the talks fell apart, people familiar with the matter said.

Glencore's most pressing issue is deciding the future of its Viterra agriculture business. The company's options are to merge the business with a rival, sell a stake or conduct an initial public offering.

Last week, Saudi Arabian Mining Co. (Maaden) announced a plan to establish a new company that will buy minority stakes in international mining assets. This move signals that even large, established producers are looking for deals in the current market climate.

Maaden, Saudi Arabia's state-owned mining company, is partnering with the Saudi sovereign wealth fund to invest in a new venture. This is a significant investment for Maaden, as the sovereign wealth fund is one of its largest shareholders. The fund was also interested in buying a minority stake in Vale SA's nickel and copper assets.

The mining industry has been warning for years that there aren’t enough copper projects to meet future demand. Most of the major miners are therefore keen to grow output by expanding existing mines or through exploration and building new ones. However, big deals often don’t bring on new production unless fresh capital can be deployed.

"Many of these companies don't have much room for growth, and acquisitions are one way to address that," said Liberum analyst Ben Davis. "But size is key here. It's going to be tough to do a mega-deal."