Mining majors chase scale despite failed megadeals

MINING companies are doubling down on mergers, joint ventures and partnerships as soaring project costs and geopolitical pressure make scale increasingly critical, Reuters reported.

Gold Fields’ rejected $27.1bn offer for Northern Star is the latest sign of the industry’s push for size, despite a string of failed megadeals including BHP’s approach for Anglo American and Rio Tinto’s talks with Glencore.

Analysts say larger miners have stronger balance sheets and cash flows, making it easier to finance increasingly expensive projects. New copper mines can cost $10bn to $20bn and take more than a decade to develop.

Scale has also become more important as governments seek greater control over copper and other critical minerals. Countries including Indonesia and Chile have increased state involvement in mining, while the US and EU have introduced measures aimed at securing supply chains.

But investors remain wary after the industry’s previous acquisition boom ended in large writedowns when commodity prices fell.

That has left boards under pressure to grow without sacrificing shareholder returns.

Some miners are therefore favouring partnerships and smaller acquisitions over large takeovers. BHP, for example, has teamed up with Lundin Mining to spread development risk.

Rio Tinto has also indicated that partnerships and bolt-on deals are preferable for now, although investors still see a possible future combination with Glencore.

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