Behind mining’s taste for mergers

Posted: March 10, 2025

In January, news emerged that Rio Tinto and Glencore were discussing a potential merger. It was surprising news—maybe even more surprising than BHP’s attempt to acquire Anglo American in April 2024.

Had either of these deals gone through, the top end of the mining industry would have been totally reconfigured. The traditional “big five”—BHP, Rio, Glencore, Anglo and Vale—would suddenly have become a big four. Had both deals gone through, we would be talking about a big three.

Of course, neither proposal appears to be going anywhere (for now), and the big five remain. Yet the vibe shift is real. “Momentum for mining megadeals is building” was Bloomberg’s take. “Investors brace for more mining M&A,” wrote Reuters.

One-off acquisitions happen all the time; sweeping consolidations are much rarer. So what’s behind this phenomenon?

The energy transition is changing mining’s key commodities

The mining industry has long been underpinned by four commodities: iron ore (for steel), bauxite (for aluminum), coal (for power), and copper (for electronics).

The energy transition is changing the relative importance of these commodities. Coal demand, while still growing, is forecast to peak by the end of the decade. But copper’s importance to the electrification of the world has seen its price hover close to all-time highs.

BHP’s interest in Anglo centered on copper: the proposal involved acquiring the smaller company’s copper assets and spinning off its platinum and iron ore businesses. Similarly, Rio Tinto is seeking to expand its copper business and exited coal mining altogether in 2018.

One notable difference in strategy between the world’s two biggest mining companies, however, is around lithium.

BHP’s CEO Mike Henry said in 2022 that, while demand for lithium is growing, the “margin opportunity” in the metal does not compare favorably with “things like copper, nickel, potash and even iron.” Rio, on the other hand, is poised to complete the acquisition of Arcadium Lithium for more than $6.5 billion later this year.

Mining majors: too small for high finance

Major mining companies may be competing against each other on the price of commodities, but they are competing against every other public company for investment.

“Technology and crypto have been so big—and, by the way, returns have been so great—that [investors] just haven’t had to come our way,” Anthony Milewski of the Oregon Group told Our Industrial Life. “The market cap of our big stocks are irrelevant in comparison.”

Indeed, at the end of 2024 Microsoft was worth over double the top 50 mining companies combined. BHP, the world’s largest miner, has a market capitalization comparable to Spotify’s.

In the world of high finance, the size of a company is of critical importance.

Big investment vehicles such as hedge funds, sovereign wealth funds and pension funds are managing so much capital that they are generally looking to put hundreds of millions of dollars into a company—without that investment equating to more than a few percentage points of the company’s value and while being able to exit the position at a moment’s notice.

In other words, liquidity is the name of the game, and individual mining stocks are not liquid enough to be attractive to institutional investors. “They need to have bigger market caps to play at that level,” says Milewski.

The rise of passive investing, which some argue has the effect of raising the value of large companies in an “amplification loop,” has also made larger valuations more important than ever. Glencore’s potential move from London’s Stock Exchange to that of New York is another indicator that mining companies recognize the need to be worth more.

Exploration investment is at a low ebb

Mergers and acquisitions might make mining companies more attractive to financial markets, but the value of miners ultimately resides in their assets and claims—and supply of these is in no way increased by shuffling their ownership.

One way of increasing the value of a mining company would therefore be to increase exploration activities and open up greenfield sites. Analysis by Bloomberg’s Paul-Alain Hunt, however, found that exploration spending is at a low ebb and that there have been no major copper discoveries since 2021.

There has also been a lack of investment in refining, which, especially for critical minerals, is heavily concentrated in China. “But Rio Tinto is not addressing that. BHP is not addressing that. They just don't care,” says Milewski. “At some moment it's going to really backfire and there's going to be a huge hole in the market in some of these commodities.”

A possible scenario is that rising commodity prices, coupled with further M&A activity, unlock access to capital for mining companies, who can then feel emboldened to invest in exploration. If that were to happen, the mining’s industry long slump would finally be over.

But even if the mining industry recovers, its winners and losers are far from certain. Is Rio’s bet on lithium going to pay off, or will BHP’s obsession with copper prove to be smarter? Will Glencore’s commitment to coal be vindicated? Will a rise in the price of iron ore be the boost Vale needs?

“Don’t tell me what you think, tell me what you have in your portfolio,” wrote Nassim Nicholas Taleb. Without skin in the game, this writer will therefore stay shtum.