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Harnessing the Green Energy Transition in Metals – A Crucial Imperative

Mining companies can use the power of M&A to acquire assets in the green metals market to propel them past their competition and outpace the traditional process and timeline required, according to
Accenture’s Gregg Albert.

Albert discusses the four types of M&A transactions actively being pursued by mining companies over the next two to three years that will continue to capture value from the green energy transition.

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Mining companies are facing increasing pressure from governments and shareholders to embrace the green energy transition metals market. Metals such as lithium, graphite, cobalt, nickel, manganese, rare earth elements and copper play an integral role in reducing greenhouse emissions to historical goals (according to the 2016 Paris Climate Accord.)

Holistic strategy

These metals are also forecast to have a current demand vs. supply shortfall given forecasts for mining production. Miners are used to creating long-term strategic plans, typically in the range of 10 to 25 years, to mitigate life-of-mine (LOM) realities. But now they are faced with an opportunity to capitalise on this unprecedented transition. And to do so, mining companies need a holistic strategy to incorporate these green energy transition metal markets into their LOM portfolio. There are two ways to do this.

The first approach, through traditional exploration and organic growth, takes an extended period of time. The second approach is to use mergers and acquisitions (M&A) to create accelerated, stepwise progress to rebalancing their asset portfolio.

According to Albert, the second approach takes less time, entices investors with premium value and provides for a long-term stable investment. Mining firms have increased their M&A activity to scale production, improve operational performance and diversify their asset portfolio. And over the next 2 to 5 years, it is expected that top mining firms will likely continue to pursue M&A to capture value from the green energy transition.

Adoption of net zero emissions targets: National governments, subnational jurisdictions, coalitions and many corporate entities have announced net-zero emissions pledges. More than a third (34+%) of the world’s largest companies have a public net zero target.

Reduction of greenhouse emissions (2016 Paris Climate Accords): The urgent need to reduce greenhouse emissions is now widely accepted, leading to historic milestones such as the Paris Agreement. Achieving the Sustainable Development Scenario of the Paris Agreement requires accelerated decarbonisation and radical change in the energy mix toward green metals. This would mean a quadrupling of green metal demand by 2040. Moving toward a faster goal of net zero by 2050 would further push green metal requirements to six times by 2040.

Growing demand for green energy minerals: Coal demand is expected to decline by 90% to less than 600 Mtce in 2050. In a scenario that meets the Paris Agreement, total demand over the next two decades will be 3x-7x for copper and rare earth elements, 19x-20x for nickel and cobalt, and almost 42x for lithium.

Investors sentiments toward ESG: The financial sector is eager to include ESG factors and enhanced climate risk methods within the investment due diligence process, risk-management processes, stress tests and portfolio impact assessment.

Depleting profit margins: Aligning operations and focusing on minerals with market demand is a priority for mining companies. As mines mature and regulations become stricter, the operational and environmental costs to operate become much higher.

Governments worldwide are making policy changes that include accelerated regulatory processes to open new mines and creating tax incentives for companies, their ecosystem and consumers. The goal is to energise demand for Green Energy Products, to stimulate mining companies to pursue these critical minerals.

Using M&A to achieve portfolio rebalancing

Major mining players can achieve this LOM portfolio rebalancing to higher-value assets through traditional exploration and organic growth, but this process typically takes many years. Alternatively, mining companies can use the power of M&A to acquire additional mining assets to propel them past their competition and outpace the traditional process and timeline required. But where should mining companies start? There are four types of M&A transactions actively being pursued over the next 2 to 3 years that will continue to capture value from the green energy transition:

Acquiring Green Energy Metals: Growing demand for electric vehicles (EVs) will likely lead to increased investment by mining firms in green energy metals. In 2022, 60% of lithium, 30% of cobalt and 10% of nickel demand were mined for EV batteries. The share of battery electric cars is expected to grow to 30% in the European market by 2025, significantly increasing demand. Clean energy technologies continue to be a major force in driving demand growth for key minerals.

Multinational mining groups like Rio Tinto, Zijin Mining Group and Sibanye Stillwater have completed acquisitions of firms with large lithium projects for ~$500m-$825m over the last two years.

Spin-off coal and iron ore business: Mining companies may spin off mature businesses like iron ore or coal to focus on their high-growth base metals business. They might also sell a stake in their base metals business to form strategic partnerships and unlock more value from the business.

Teck Resources is evaluating multiple offers for its steelmaking coal unit, which it is spinning off to focus on its copper business.

Brazilian firm Vale is selling a 13% stake in its base metals business for $3.4b to Manara Minerals and Engine No 12 to boost copper and nickel production.

Acquire copper and metal assets: Mining companies are keen to diversify or expand their asset base by acquiring more copper, due to its central role in green energy transition (EV’s, charging infrastructure, power grid, solar PV (photovoltaic), wind farms.)

The copper market in 2035 could see a global deficit of up to ~10 MMT due to under-investment in building new copper mines.

Example M&A Transaction

Barrick Gold, the world’s #2 gold miner, approached First Quantum Minerals about a potential takeover to invest in copper.

At least 6 mining companies, including Anglo American, Freeport and Vale, have approached Teck Resources to acquire its proposed base metals unit focused on copper.

Acquire decarbonisation technology: Mining companies will be expected to decarbonise their own operations as they contribute to 4–7% of Global Greenhouse emissions.

Acquiring or partnering with mining tech firms could be a significant opportunity.

First Mode has merged with Anglo American’s zero-emission truck business for hauling iron ore in a $1.5b transaction.

Plotlogic, which uses its geo-mapping technology to help BHP, Anglo American and Glencore drill sustainably, raised $28m in funding.

Future of mining

Mining companies’ portfolios will not resemble traditional mining of the 20th century. They must embrace the green energy transition metals market to preserve margins, meet growing ESG customer demand and acquire market share while available. Large mining companies may start to compete over the same green energy transition metals, only increasing valuations and reducing the availability of target assets.

The time for mining companies to help ensure they have a holistic plan to address this growing market is now. And portfolio rebalancing through M&A is a solution that can accelerate the portfolio transition quicker than traditional organic growth.


Source: Trade Arabia

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