Mining Mergers & Acquisitions

By Tshepo Magagane

Mining M&A, does it solve anything?  – the biggest problem is that it does not bring virgin ore to the market and worse, the ecosystem of juniors being turned into mid-tier single projects and then being acquired by the majors has totally broken down.

In addition, capital from Merchant Banks is lacking (plus traditional listed markets have broken down – see abandoned IPO of Cobalt Holdings with cornerstones such as Glencore).

So does mining M&A solve any of the problems?

Diversified Miners and Producing single projects need a new playbook – they need to create “unlock foundations” for capital to find its way into the sector.

Even for diversified miners, while trading of 5x EBITDA, tells you that the market does not appreciate them.

So should they be issuing equity at 5x EBITDA (if you assume LoM of 30yrs, the person is only willing to pay less than a 1/5 of actual value – you can stress-test this against BHP v Nvidia ie same CF generation by also investors are only willing to pay 5c for BHP for every Dollar they pay for Nvidia).

If I am producing and need to raise capital, it is better to do it at project level whereby you can have NAV discussion.

As most of those investors are then Sovereign in nature – this is going to close off entry points into various sub-sectors (eg Copper).