Mining bosses are used to haggling with governments about earnings from their mines, but should expect increasing protectionism to collide with their dealmaking ambitions
Now matters have reached a fever pitch. On April 26th Teck Resources announced that it would scrap a shareholder vote on its restructuring hours ahead of its planned shareholder meeting. The proposal, which was announced in February, would have split the Canadian miner in two, spinning off the firm’s steelmaking-coal operations and leaving behind its copper and zinc businesses.
Yet any transaction would be much smaller than the biggest ones struck during the previous cycle. Ghosts of deals past might still dampen the willingness of today’s bosses, who were mere upper-middle-managers last time around, to part with their cash buffers in bigger tie-ups. Valuing mining firms is as difficult as predicting the future price of the commodities they produce, and overpaying can spell disaster.
The past supercycle may be full of warnings but what bosses face today is different. Whereas China devoured heaps of coal and iron ore, this time copper and other non-ferrous metals will take centre stage. Bulls argue that a dearth of digging means that as China’s economy reopens and America’s remains resilient, there will soon be a shortage of the red metal. Looking further ahead, some are even more optimistic.
Sometimes the problem is getting shareholders to notice the mines that a company already owns. A firm that positions itself as a green metals “pure play”, which is corporate-speak for focusing on one thing, is increasingly attractive to investors. This is an important rationale behind Glencore’s plan to create “GlenTeck” out of the two firms’ metals businesses. Vale, a Brazilian mining giant which makes most of its money from iron ore, is also mulling a separation of its base-metals business.
As the line between economic and national-security interests increasingly blurs, countries have beefed up their investment-screening regimes, with an increasing focus on minerals critical to the energy transition. A related effort to redesign supply chains through huge industrial-policy initiatives such as America’s Inflation Reduction Act is also creating demand for commodities and will spark its own deals.
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