According to data from S&P Global, merger and acquisition (M&A) activity in base metals surpassed gold for the first time in four years in 2022, driven predominantly by copper-focused deals, as major miners shifted their corporate strategy toward acquiring early-stage projects.
This marks a significant shift in the industry, as majors continue to take a hands-on approach with juniors preempting multiple mineral shortages. The energy transition is demanding large quantities of minerals and metals, which are expected to surge in demand due to the increasing adoption of renewable energy technologies, electric vehicles, and other green initiatives.
This has stirred up M&A activity in the sector, with analysts noting that major miners are showing interest in junior mining companies amid these forecasts of tight supplies.
Last year, major miners led M&A activity in the mining and metals sector, and deals have continued in 2023 despite macroeconomic uncertainty, including Rio Tinto’s acquisition of a 15% stake in Sovereign Metals Ltd., and Lundin Mining Corp.’s acquisition of a 51% stake in SCM Minera Lumina Copper, Chile.
Executives from top producers Rio Tinto (ASX: RIO) and Albemarle Corp. (NYSE: ALB) have shared that they are focusing on a growth strategy that includes emerging projects.
Early-stage projects are considered “less expensive but also riskier.” To manage the uncertainty, these companies plan to take a conservative stake and observe a project’s development over time.
“We’ve been talking about pivoting toward resources from an M&A strategy for a while,” said Kent Masters, Albmarle CEO and chairman, during the company’s Q2 earning call. “And then also going a little early stage, so we get it on these opportunities earlier when they’re not as expensive.”
In early August, the chemicals giant closed a C$109M deal for a 4.9% stake in Patriot Battery Metals Inc. (TSXV: PMET), a junior explorer with claims to the largest lithium pegmatite mineral resource in the Americas.
Not all attempts have been successful, however, as Albemarle also tried to acquire Australia-based lithium producer Liontown Resources Ltd. in March, but was rejected, with Liontown’s board saying the company was being undervalued.
Reuters reported that Rio Tinto CEO, Jakob Stausholm, also spoke on the growing focus on small, bolt-on acquisitions rather than huge buyouts that would divert focus and potentially even change the nature of the company.
“I don’t think we need a big acquisition right now,” Stausholm said. “What we are trying to do is a bit of smaller portfolio acquisitions … that shapes the portfolio.”
Rio Tinto has already announced several small partnerships this year, including the purchase of a 57.7% stake in Codelco’s Agua de la Falda gold project in Chile with the intention of searching for copper on the land claims.
Earlier in July, the company agreed to buy a 15% stake in Australia’s Sovereign Metals (ASX: SVM) for A$40.4M. Rio is interested in raising its lithium exposure and is looking at a number of possible lithium interests, Stausholm added.
Overall, the shift in M&A activity from gold to base metals and the increasing interest in junior mining companies indicates a significant transformation in the mining industry, driven by the growing demand for minerals and metals due to the energy transition, with many showing keen interest to see how this trend continues to evolve in the coming years.
“Last year, we saw a shift to growth with our first forays into M&A in over a decade,” Rio Tinto CFO Peter Cunningham said during the company’s half-year earnings call.
“But as I have mentioned before, it is not a predetermined budget. If value-adding projects are not ready, then the funds will go back into the capital allocation wheel.”
