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Australian miners go big or go home in recent M&A activity


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Australian miners go big or go home in recent M&A activity

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OZ Minerals' Prominent Hill mine in South Australia is part of a major copper region BHP wants to get its hands on in a drive for future-facing commodities.
Source: OZ Minerals Ltd.

Australia-based mining companies have been making big swings to acquire smaller outfits showing growth potential, in stark contrast to more conservative M&A activity in other parts of the world.

Companies from Down Under spent an aggregate US$15.89 billion in making 92 corporate deals between Jan. 1, 2021 and Sept. 2, 2022, according to S&P Global Market Intelligence data, targeting deals in politically stable countries. With a thin development pipeline, many Australian miners chose to buy their way into the most promising growth opportunities, while spending comparatively less than their counterparts on asset-level deals.

In North America, companies are more exposed in South America, where new governments have been eyeing the mining industry as a source of funds to fuel new social programs. The uncertainty is keeping these companies on the sidelines. And some companies, especially those based in Canada where tax incentives support exploration, have a deep bench of up-and-coming projects. Companies in the Americas made 181 deals worth US$6.77 billion in 2021 and 2022, while Asia-Pacific-headquartered companies did 104 deals worth US$13.39 billion, excluding deals with gold classified as the target industry and those with multiple buyer regions.

"The dynamics of the Australian market just suit M&A at the moment, with a lot of smaller companies which have done a good job of packaging up assets because they've been spun out of other companies," said Mike Harrowell of Harwind Partners, a mining corporate advisory serving Australia and North America.

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Dealmaking proliferates Down Under

Australian miners have an advantage in buying projects close to home.

"The investable universe seems to shrink by the year in which companies would like to make a 20- or 30-year commitment, and Australia has to be in the top two mining jurisdictions globally," said David Coates, Bell Potter Securities' senior resources analyst.

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The Esker camp next to the Eagle's Nest
nickel-copper-platinum-palladium project
which Wyloo Metals acquired in Northern Ontario.
Source: Wyloo Metals

BHP Group Ltd. has been targeting future-facing metals in its M&A strategy. In early August, the mining giant made a takeover offer for Australian copper producer OZ Minerals Ltd., which rejected the deal. And in late 2021, the company opted not to increase its offer for nickel-focused Noront Resources Ltd. after a monthslong bidding war with another Australian miner, Wyloo Metals Pty. Ltd.

OZ was a strategic fit given the proximity of its Carrapateena and Prominent Hill copper mines to BHP's giant Olympic Dam and 2018 Oak Dam copper discovery. BHP is aware of about 130 companies that explore, develop or mine for copper elsewhere in South Australia, some of whom were drawn by the discovery at Oak Dam. OZ and BHP did not respond to requests for comment.

Australia's IGO Ltd. closed a US$1.4 billion deal in June 2021 for a share in Western Australia's Greenbushes, the world's biggest hard-rock lithium mine. It also cashed in on depressed nickel prices earlier this year with a A$1.3 billion friendly takeover of Western Areas Ltd., consolidating its position in the state's nickel market.

Orocobre Ltd.'s A$4 billion merger with fellow Australian company Galaxy Resources Ltd., announced in April 2021, also led to the creation of Allkem Ltd., the world's fifth-largest lithium chemicals company by market capitalization at the time.

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Caution elsewhere

North American base metal companies, on the other hand, may be more exposed to South America where major issues over looming tax hikes and mine protests have tied up expansions and plans for spending amid a turn to the left in Chilean and Peruvian politics, Exploration Insights head Joe Mazumdar said in an interview.

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OZ Minerals' Carrapateena copper mine in South Australia.
Source: OZ Minerals Ltd.

"A lot of them are sitting on their capital waiting for the local governments to get their royalties and all this tax stuff sorted out before they make a big investment," Mazumdar said. "The last thing they want to do is make a big M&A deal and then have something positive happen in Chile. And then suddenly, you don't have enough money for your business in South America."

Other large miners such as Teck Resources Ltd., Freeport-McMoRan Inc. and First Quantum Minerals Ltd., and smaller ones including Capstone Copper Corp., Hudbay Minerals Inc. and Lundin Mining Corp., have substantial in-house pipelines of new discoveries and projects in development, Paradigm Capital mining analyst David Davidson said in an email. That means they can bypass anything but the most promising buying opportunities.

Meanwhile, in the EU, mining companies like Glencore PLC have held back on major acquisitions. Glencore, one of the largest Europe-headquartered mining companies, launched an asset review last year as it looks to gear its portfolio to "commodities of the future." In late 2021, it proposed selling 10 or more assets amid a push to focus on higher margin operations. While Glencore management signaled an appetite for buy mining assets that will contribute to the energy transition, such as copper and nickel projects, it cast buying them as tough.

"There is a limit of what can be done at the moment, and it's hard to necessarily buy assets at that value that would make sense for us necessarily at the moment," Glencore CFO Steven Kalmin said on a Dec. 2, 2021, call.

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