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Critical Minerals Boom? Does this Drive Consolidation, and is this Good?

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Highlights

  • Rio Tinto and Glencore explore potential $150 billion merger amid critical minerals boom.
  • Demand for lithium, nickel, cobalt, and graphite increased 8-30% in 2023, with projected doubling by 2040.
  • Investment in critical minerals mining rose 30% in 2022 and an additional 10% in 2023, signaling industry transformation.

In her article “Critical Minerals Boom Drives Mining Sector Consolidation,” Felicity Bradstock examines the current surge in mergers and acquisitions within the mining industry, attributing this trend to the escalating demand for critical minerals essential to the global energy transition.  Of course, she does not mention the contrarian move by the United States under new president Donald Trump, who focuses on fossil fuels as a key driving force behind energy.

The author in OilPrice.com (opens in a new tab) cites significant developments, such as the potential $150 billion merger between Rio Tinto and Glencore (although, according to Reuters, (opens in a new tab) this is no longer active) and the joint $2.78 billion acquisition of Filo Corp (opens in a new tab). by BHP and Lundin Mining, as clear indicators of this consolidation movement. Bradstock also highlights that the demand for minerals like lithium, nickel, cobalt, and graphite increased by 8–30% in 2023, with projections suggesting a doubling of both demand and market value by 2040. Investment in critical minerals mining rose by 30% in 2022 and an additional 10% in 2023, underscoring the sector’s growing focus. Industry experts, including Russ Mould of AJ Bell, emphasize mergers and acquisitions as efficient strategies for scaling operations to meet this rising demand.

What about any environmental and social implications or externalities of increased mining activities, such as habitat destruction, water usage, and community displacement? The author avoids this topic, although sustainability is briefly mentioned. Overall, there is a lack of substantive discussion on how companies address these concerns.

Additionally, the analysis overlooks geopolitical risks that heavily influence the critical minerals market, including trade disputes and resource nationalism, and given the moves made early by the U.S. president, tension could mount fast.

The article also avoids examining potential barriers to consolidation, such as regulatory hurdles, antitrust concerns, or financial risks that may impede mergers. Furthermore, there is an absence of discussion on regional differences in mining strategies, regulatory environments, and investment trends, which could provide a more nuanced understanding of the industry’s dynamics.

Bradstock assumes that mergers and acquisitions will inherently lead to increased operational efficiency and market strength without considering potential challenges such as mismanagement or integration issues. The reality across many sectors is that mergers often don’t lead to the shareholder value sought.

The projected doubling of critical minerals demand by 2040 is presented without accounting for potential technological advancements, like the development of substitute materials or improved recycling methods, which could mitigate demand. Ms. Bradstock also presumes uniform support from investors and shareholders for mergers, disregarding possible opposition due to perceived risks or conflicting priorities. Additionally, there is an assumption that technological innovations will seamlessly integrate into new mining projects without addressing practical or financial limitations that could arise.

While Bradstock highlights the critical minerals boom and its role in driving consolidation within the mining sector, the analysis could include a more comprehensive exploration of associated risks, challenges, and broader contextual factors, not to mention the track record of previous deals done. Did they lead to value?   

Incorporating discussions on environmental concerns, geopolitical dynamics, and potential obstacles to consolidation offers a more balanced and thorough perspective on the industry’s current state and future trajectory.

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