Mergers and acquisitions continue to be plentiful in the mining industry, and Reunion Gold is among the latest companies to strike a deal.
The Toronto-based company’s recent merger with G Mining Ventures Corp. The $638 million project promises to create a new, leading intermediate gold producer.
There had been rumors that the sale had been in the works for months, especially among investment bankers.
Each year, a group of representatives from the metals and mining industry gathers at the PDAC conference in Toronto to discuss the latest developments in the industry.
After hours and over “copious bottles of wine,” these experts typically raise a range of topics, including potential takeover targets, one participant told Global Finance.
This year’s March event was no exception, and Reunion was among the names noted to be in the mix. And why not? Reunion, led by CEO Rick Hawes, owns a high-quality project in Guyana, a mining-friendly jurisdiction, and is on track to produce gold by 2027.
The company is also flush with cash. Late last year, Reunion sold an 8.6% stake to Luxembourg-based La Mancha Resource Capital for $35 million. It also secured $70 million in additional funds through a separate financing deal.
Reunion isn’t the only company that mining buyers have been circling. In April, Nexus Uranium CEO Jeremy Poirier said it was time to “evaluate strategic alternatives” or an “outright sale” of the Nevada gold project. Meanwhile, Defense Metals has just contacted London boutique HCF International Advisers to review options for a rare earths project in British Columbia. Then there’s First Quantum Minerals, which is currently in the process of buying what it considers “non-strategic assets.”
For many players in the mining industry, now is the time to strike a deal. After all, the demand for gold depends on the fact that the precious metal serves as a hedge against severe inflation.
And overall, commodity companies are consolidating at a rapid pace, while other sectors have been somewhat sluggish. Shortages of some metals, as well as changing geopolitical dynamics and emerging green energy trends, have inspired would-be sellers to pull out.
Close observers observed this situation last year, when the global mining deal was valued at $121 billion. This is 75% more than in 2022.
There was also a slight increase in deal volume of 5% between 2022 and 2023. Sixteen deals exceeding US$1 billion were concluded in 2023, up 33% from 2022.
Mining remains one of the busiest sectors, as it was last year. According to Dealogic, the global volume of mergers and acquisitions in this area was 97 deals in January, 69 in February, 77 in March and, according to the latest data, 30 in April. The deal’s value for the year now exceeds $26.74 billion.
According to the CEO of Ramaco Resources Inc. Randall Atkins, an increase in buyouts and share repurchases is also likely. “In theory, now is a good time to be aggressive,” he says, “but not a good time to be bold.”
Why buy?
High interest rates, regulatory scrutiny and a tense backdrop of market uncertainty have buyers wary in 2023; Globally, merger and acquisition activity fell to its lowest level in a decade.
This year is more dynamic: from January to March, 166 transactions worth more than $100 million were concluded. This is 11% more than in the same period in 2023.
With forecasters expecting the US Federal Reserve to make at least one rate cut in June or July, deal makers are optimistic, especially when it comes to the mining industry.
BMO Capital’s Jackie Przybylowski wrote in an April research note on Denver-based Royal Gold that while industry growth remains modest, “that could change as the year progresses.”
Expect opportunities for more and larger deals, “fueled by strong commodity prices and a rebalancing,” she said.
The number of deals will also increase due to the “global energy transition,” according to BMI, the research arm of Fitch Solutions. On the purchasing side, corporations are clearly taking steps to prepare for technologies and consumer products that require critical metals. For example, electric vehicles rely on lithium for batteries and cost-effective energy storage.
Already this year has seen a massive $10.6 billion merger between Philadelphia-based Livent and Australian lithium producer Allkem, highlighting growing demand for green metals and portfolios that include hard rock lithium mines.
Electric cars are also based on copper and nickel. So it’s no surprise that Melbourne-based BHP spent $6.4 billion on OZ Minerals a year ago. “This acquisition strengthens BHP’s copper and nickel portfolio and is consistent with our strategy to meet growing demand for critical minerals needed for electric vehicles, wind turbines and solar panels,” BHP CEO Mike Henry said at the time.
BHP is also reportedly preparing a new offer for copper producer Anglo American after its initial $39 billion offer was rejected by the London-listed miner.
BHP isn’t the only corporation writing big checks for “critical minerals.” Prior to the agreement, London-based Rio Tinto gained greater control of the Mongolia project through its $3.1 billion takeover of copper developer Turquoise Hill Resources. (Asia Pacific, excluding China, recorded the highest M&A value in 2023, surpassing North America.)
Other major investors include Manara Minerals from Saudi Arabia. The company has invested billions of dollars in Brazil’s Vale’s copper-nickel business to diversify its activities outside the oil industry.
Another deal involved Australia’s MMG and the parent company of the Khoemacau copper mine in Botswana, valued at $1.8 billion.
Supply shortage in the mining industry
Growing supply shortages are driving up prices and stimulating mergers and acquisitions. BMI predicts a lithium supply shortage by 2025. Bank of America predicts gold prices will reach $3,000 an ounce. And Goldman Sachs expects the looming copper shortage to push prices higher to more than $6.80 a pound.
“These are staggering numbers for copper,” says American Pacific Mining CEO Warwick Smith. “So what does this have to do with mergers and acquisitions? I think you’ll see a lot of smaller companies coming together.”
The American Pacific may be relevant. Under Smith’s leadership, the Vancouver-based company acquired Madison Metals (2020), Constantine Metal Resources (2022) and Clearview Gold (2023).
The company also co-owns a copper and zinc mine in Alaska with its venture partner, Tokyo-based Dowa Metals & Mining Company.
We can expect the development of new cross-border alliances in the near future. The companies are trying to gain an edge in competition from Russia and China, two countries that continue to lay claim to the world’s richest mineral resources.
“Everything becomes more internal,” Smith says. “For example, the US looks at all these critical metals like lithium and says, ‘We get all our lithium outside our borders.’
The incentive is now for companies – as directed by the jurisdictions in which they are based – to pursue mergers and acquisitions, partner with a mining-friendly country, and accumulate assets to mitigate dependence on countries where geopolitical relationships may currently be shaky. best.
China, according to Benchmark Mineral Intelligence, controls most of the world’s production of lithium, nickel, graphite, cobalt and manganese. He also owns 100% spherical graphite.
According to Smith, Western countries and their domestic companies think like this: “We need to have these critical metals ourselves.”
That attitude has also influenced mergers and acquisitions, according to Douglas Pearson, managing director at metals and mining investment bank Moelis & Co.
“Reshoring is worth considering,” says Pearson. “You see it manifest on the steel side.”
Let’s remember, in December last year. Japan’s largest steel company, Nippon Steel, has agreed to acquire Pittsburgh-based US Steel for $14.1 billion plus $800 million in debt. The deal has since been blocked by US antitrust regulators. The Biden administration is seeking to keep the nation’s fourth-largest steel company domestic.
Regulatory issues also arise amid a shortage of scrap steel.
“One of the factors that seems to be driving a lot of recent mergers and acquisitions is scarcity and value, especially of good, high-quality assets,” says Pearson. “In many cases [metals and mining] this is the only sector in which you are obliged to the location of the goods. In other industries the situation is different. What is fundamentally key here is ownership and control of these critical resources.”