At a glance

S&P Global recently shared its findings on mining mergers and acquisitions (M&A) in 2022. This Insight will highlight the key points identified by S&P Global.

Despite a bleak macroeconomic environment, M&A transactions remained robust in 2022. The total value of deals fell by 12% compared to 2021, but market activity remained resilient. Buyers showed a preference for Australia and Canada as target locations and spent more on acquiring companies than projects, with major companies being the most active investors.

Copper overtakes gold in deal value

Base metals overtook gold as the leader in total deal value. Although gold had more transactions, its total deal value dropped by 48% to $9.85 billion. The 65% increase in base metal transactions was driven mostly by copper deals. This can be attributed to the growing demand for copper in green energy and concerns over its reserves and supply. Copper and gold were evenly represented among the top 20 transactions for companies and projects. However, the contribution by nickel and zinc transactions was minimal.

Producing companies and projects command the highest prices

The industry witnessed three significant deals in 2022, with producing companies and projects taking the top spots. BHP Group Ltd purchased OZ Minerals Ltd for $5.94 billion, acquiring over 11 million metric tons of copper from mines in Australia and Brazil. Yamana Gold Inc received two takeover bids and accepted a $4.84 billion joint proposal from Agnico Eagle Mines Ltd and Pan American Silver Corp. The acquisition included several gold and copper projects with 49.3 million ounces of gold and 4.7 million metric tons of copper. Thirdly, Rio Tinto International Holdings Ltd completed its $3.25 billion acquisition of the remaining 49.2% interest in Turquoise Hill Resources Ltd, which had 15.7 million metric tons of copper in reserves and resources.

Canada and Australia were the top target countries and majors were the biggest spenders

Canada and Australia were the top destinations for M&A in the mining sector in 2022, accounting for 45% of the companies and projects targeted. Out of the 25 target companies, 11 were in Canada and 10 in Australia. The two countries also had the highest total deal value, with Canada at $8.83 billion and Australia at $7.96 billion. Meanwhile, China spent $1.73 billion on four transactions, while Kazakhstan's total deal value amounted to $1.14 billion. The largest spenders were the major mining companies, whose average deal value was $1.08 billion. These deals focused mainly on acquiring producing assets.

Record-breaking deal anticipated in 2023

M&A activity in 2023 so far has been strong, driven in part by the potential merger between Newmont Corp and Newcrest Mining Ltd. If the deal goes ahead, it will be the largest gold merger ever. Newmont's initial offer to acquire its former subsidiary was almost $17 billion, far surpassing the Agnico Eagle and Kirkland Lake deal. On April 10, Newmont Corp laid down a best and final offer of $19.5 billion. If the merger is completed, it would involve the exchange of 134.3 million ounces of gold in reserves and resources and the addition of the Cadia East asset in Australia and Wafi-Golpu in Papua New Guinea, which would increase Newmont's exposure to copper. The proposed merger has the potential to extend Newmont’s gold output to nearly double its nearest rival, Barrick Gold Corp.

Coal industry is changing

Coal was not covered by S&P's year-end review, but it is important to note that the industry is likely to undergo considerable changes in 2023. The shift towards green energy has led to a surge in M&A activity, with large players like BHP looking to realign their portfolios.

Glencore Plc proposed a merger with Teck Resources, but Teck rejected the bid and instead opted to spin off its coal-making business to create two new entities: Teck Metals and Elk Valley Resources. In a surprising turn of events, Teck Resources cancelled the vote to spin off its coal assets hours ahead of its shareholder meeting, giving Glencore the upper hand in its attempt to acquire Teck. Despite the cancelled vote, Teck maintains its intention to pursue the company split. It is not clear what Teck will do, but the cancelled vote opens up possibilities for new proposals or a separate sales process for the coal assets.

Outlook for 2023

In many ways, the M&A outlook is positive for mining. The metals and mining industry is growing due to the green energy transition. The demand for key metals is set to remain high, while supply will decrease. To address potential shortages, miners are diversifying their portfolios or consolidating their operations through strategic acquisitions. M&A activity is also being used by governments and companies to secure their commodities supply chains.

However, the current macroeconomic environment may impact miners’ willingness to engage in M&A in 2023. Factors such as inflationary pressures, labour shortages, and an anticipated slowdown in global economic growth could cause miners to hold off on purchase in the short term. This is especially true if commodity demand and prices weaken.

Read S&P’s insights here.