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Looming M&A wave: mining giants face pressure for growth

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2023-07-03

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In a significant development for the mining industry, a potential wave of mergers and acquisitions is looming as mining majors seek avenues for growth. Duncan Wanblad, CEO of Anglo American, has cautioned that while M&A activity is likely, it should be approached cautiously to avoid repeating past mistakes. Wanblad highlighted the ex-growth status of many mining companies and the significant challenges in finding and developing new resources as key drivers for potential consolidation in the sector.

Speaking at the World Mining Congress in Brisbane, Wanblad emphasised the need for balance between growth aspirations and prudent decision-making. He warned against making "heroic pricing assumptions" that could lead to value-destructive deals. Lessons learned from previous mining booms have instilled discipline in the industry, with both mining companies and shareholders recognizing the importance of sustainable growth.

Wanblad stated, "I think some form of consolidation in the form of M&A is very likely to happen given where we are today. I think this is more fundamentally driven by the fact that a lot of mining companies are ex-growth – they don't have anywhere to go. And secondly, finding this stuff and then building and developing it takes a balance sheet that's pretty sizeable."

The recent surge in M&A activity in the mining sector has been driven by the growing demand for metals such as copper and battery-making minerals like lithium. S&P Global Market Intelligence estimates that annual global copper demand alone will double from 25 million to about 50 million tonnes by 2035, with few signs that the demand can be met from existing mines and new discoveries.

However, Wanblad emphasised the importance of exercising caution and maintaining discipline in the current environment. He stated, "There is a hell of a lot more discipline in the industry. And that's why even in the run-up to where we are today, you haven't seen the same momentum behind M&A as you saw in the run-up to the top of the supercycle in the late 2000s."

Wanblad highlighted the need for mining companies to take a longer-term view, especially considering the ongoing transformation of the world's energy system to reduce carbon emissions. He acknowledged the cyclical nature of the mining industry and the importance of well-executed deals that can withstand market fluctuations.

However, he stressed that M&A alone would not solve the underlying challenge of meeting the world's resource demands.

He added, "Those resources aren't on the books anymore. So I think there's a stark recognition that all of a sudden the wherewithal to actually grow doesn't exist anymore."
As mining companies navigate the complexities of the market and seek opportunities for growth, striking a careful balance between strategic acquisitions and disciplined decision-making will be crucial.

The industry's ability to sustainably meet future resource demands while addressing environmental considerations will play a pivotal role in shaping its long-term success. 

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