BMO bankers predict that metals market volatility could hinder mining M&A activity

The recent unpredictable fluctuation in metals markets might put a damper on the speed of mining mergers and acquisitions this year due to wild price swings complicating transactions, according to BMO Capital Markets’ most active investment bank in the sector. The heightened interest in takeovers is supported by high metals prices, solid balance sheets, and increasing shareholder backing, but determining the value of deals is becoming more challenging as parties struggle to reach agreements.

BMO Capital Markets’ Ilan Bahar and Jamie Rogers, co-heads of global metals and mining, pointed to the motivation for deals being the rush to fortify copper portfolios amidst rising demand from global electrification and escalating development costs. The mining industry has witnessed several high-profile takeover endeavors in recent years, such as the failed talks between Rio Tinto Group and Glencore Plc due to valuation disputes earlier this month.

“In the middle of last year, our M&A activity levels seemed to be at their peak, and today it hasn’t changed much,” Bahar remarked. He explained how the sellers’ expectations are soaring with rising share prices, while market volatility on a daily and weekly basis is hindering consensus.

Copper reached a historic high in January, experiencing one of the steepest surges in history, whereas gold and silver have encountered sharp fluctuations and repeated record-breaking peaks recently. As a result, underwriting transactions has become more challenging. Nonetheless, copper and precious metals remain focal points where dealmaking continues to look promising, according to BMO Capital Markets’ bankers.

BMO Capital Markets, set to host a significant mining conference next week in Florida, held the top advisory position in the industry last year based on the number of deals, overseeing 16 announced takeovers valued at $38.6 billion. The firm has consistently ranked in the top three investment banks over the past four years in terms of total deal value and market share.

Bahar highlighted the decreasing number of players with operational assets, with some assets potentially too small for the largest companies. An example cited was China’s Jiangxi Copper Co.’s bid in December to acquire SolGold Plc, which possesses a project in Ecuador. The economic viability of copper projects in the current environment, coupled with the scarcity of such projects, is expected to drive further activity in the sector.

Moreover, critical minerals have been witnessing a resurgence in demand, given their essentials in various sectors of the economy. Despite the hurdles posed by market volatility, the core mining sectors of copper and precious metals are forecasted to remain robust in terms of dealmaking activity.