Anglo American [LON:AAA] might have rejected BHP’s [ASX:BHP] GBP 39bn (EUR 46bn) takeover in May, but critical minerals for the energy transition are likely to remain on the agenda for dealmakers and regulators in Europe, the Middle East and Africa (EMEA) in the months and years ahead.
BHP’s proposed mega-deal would have created the world’s largest copper producer. The metal, which is highly conductive, is a key component in batteries for electric vehicles (EVs).
Other critical minerals for EV batteries include cobalt, lithium, nickel and other rare earth minerals. Global demand is forecast to quadruple to 3m tonnes in 2030, according to a report from Benchmark Minerals Intelligence. And buoyant demand is likely to continue to drive M&A as well as attracting regulatory interest.
“Critical minerals are front and centre of the to-do list,” said Laura Hulett, partner at Herbert Smith Freehills (HSF). “M&A has surged in the last year, driven by growth in demand from EV battery and renewable energy manufacturers. Whilst there are new projects coming on stream, supply has traditionally lagged demand.”
Deal volumes in EMEA’s minerals mining sector boomed in 2023, with total volumes of EUR 1.4bn across 12 deals, according to Mergermarket data. This was the busiest year since 2016 when EUR 5.1bn crossed the line.
Although the pace has dropped in the year to date, one significant deal involved Australian precious metals investment firm Deterra Royalties [ASX:DRR] acquiring Trident Royalties [LSE:TRR], a UK-based diversified mining royalty company, in June. The deal, which values Trident at GBP 144m, underscores growing cross-border consolidation, albeit on a smaller scale than Anglo/BHP.
The race for raw materials powering clean energy technologies – particularly EV batteries – means that vertical integration has come onto the agenda as a means of minimising exposure to market swings and boosting domestic manufacturing.
In June 2023, French minerals producer Imerys [EPA:NK] acquired an 80% stake in UK miner British Lithium as part of a joint venture (JV), reflecting a growing push from Europe-based producers to boost national divert minerals production away from a select few global producers.
DRC’s cobalt in focus
The International Energy Agency (IAE) recently reported the Democratic Republic of the Congo (DRC) in Africa dominates the market for extracting cobalt. The market is characterised by informal mines. The extraction of other critical minerals are dominated by countries outside EMEA, including copper (Chile), lithium (Australia), nickel (Indonesia) and rare earths (China).
There is a growing trend for so-called “resource nationalism,” particularly in emerging nations, as governments look to secure a bigger share of mining projects to boost local employment and investment.
“There has been an increasing push from host governments in emerging countries to promote vertical integration to boost domestic investment in natural resources and advanced technologies,” said Irina Akentjeva, partner at HSF.
Cross-border mining M&A is likely to remain a theme. And dealmakers are becoming increasingly conscious of foreign direct investment (FDI) risks to transactions.
“Added to the already complex regulatory nature of the critical minerals space, there has been a real surge in FDI and interest from relevant regulators,” Hulett said. “It’s not driving or stopping industry investment, but it is a key point for anyone wanting to invest – taking FDI regulations into account and bearing these in mind as factors in deal timetable.”
As fossil fuels are phased out in the run-up to Net Zero, energy-transition plays, which often depend on critical minerals, will increasingly need capital. For example, Cornish Lithium, another UK-based minerals miner, announced a USD 67m capital injection last August from diverse investors including UK Infrastructure Bank (UKIB), US private equity fund The Energy & Minerals Group and minerals-focussed investment firm TechMet. The funding package which could be worth a further USD 210m aimed at commercialising production.
“We’re seeing a convergence of players who wouldn’t traditionally invest in the space taking equity stakes in critical minerals projects, from oil and gas majors to trading houses and sovereign wealth funds who recognise the scale of investment required for projects to meet demand and want to broaden their skill set in the energy transition,” Hulett said.
The mining sector has long raised environmental, social and governance (ESG) concerns around ecological impact and human rights violations, particularly in emerging economies. “Anything with mines as a rule of thumb is often problematic,” said Christoph H. Seibt, Corporate and M&A partner at Freshfields.
Battery materials sourced in informal mines in DRC could well raise flags as supply-chain transparency laws come into force in Germany and Europe. ESG due diligence is also becoming increasingly important in Europe. The EU also introduced the Critical Raw Materials Act, which came into force in March 2023.
“We’ve seen European investors start to pay more attention to the provenance of minerals with more in-depth due diligence processes for acquiring minerals and for offtake contracts.” said HSF’s Akentjeva. “This is partly being driven by EU directives around ESG reporting, but also by legislation and voluntary acts by corporates operating in emerging markets.”
An example of the deal driven by the changing environment is Talga Group‘s [ASX:TLG] Aero Lithium Project in Sweden, which agreed an earn-in with Sociedad Química y Minera de Chile in June. The deal was partly driven by the need to source lithium within the EU.
Backlash?
However, some industry experts are questioning whether new legislation could have an inverse effect on local mining communities. One sector banker noted that, while there is justified sensitivity around issues such as child labour, he fears regulations will add another layer of reporting to existing ESG disclosures.
“My fear is that it could alienate some communities or families that rely on artisanal mining for income. Will these communities then turn to Chinese offtakers who do not necessarily have the same stringent reporting requirements,” he said.
In the longer term, though, innovation is likely to change the mining industry in parallel with M&A and regulatory scrutiny. Artificial intelligence (AI) is becoming a valuable data tool in the sector, decreasing uncertainty, predicting mineral concentration sites and enhancing the physical drilling process, according to Andrii Sevryukov, the CEO of Beholder, a developer of an AI-driven platform for sustainable exploration of metals and minerals.
“AI can also accelerate deal flow, making discoveries faster and facilitating quicker investments through validating geological statements and viability simulations. AI revolutionizes mining by making it more transparent and sustainable,” Sevryukov said.
Contact Us
VUKA is the trusted media partner to key professionals, policy makers, suppliers and
manufacturers. We provide unparalleled opportunities for industry-wide connection.