The green metals, also known as critical minerals, that are needed for the clean energy transition to combat climate change — such as cobalt, copper, and lithium — are the future for mining. 

But, according to PwC’s annual report on the world’s top 40 mining companies, deals and merger and acquisition (M&A) activity in the mining sector remain dominated by a precious metal with a long history of extraction: gold.

The mining industry is also currently not in a bad financial space after absolutely coining it last year on soaring prices, the accountancy firm revealed in its report, which was released on 15 June.

To wit, the Top 40 mining companies say their revenues spiked 32% in 2021 compared with 2020. But red-hot prices meant this stream flowed directly to the bottom line, resulting in a 127% surge in net profits. 

Capital expenditure rose 18% on the back of these profits, but a lot of that cash was also directed to shareholders as dividend flows leapt 130%. 

The mining sector has hit pay dirt of late and that has been reflected in record profits — including for South African mining companies, which threw the National Treasury a lifeline last year in the form of massive tax and royalty payments. 

Strategic scramble

So, what else can miners do with this stash of cash? Getting in on the scramble for green metals is one obvious strategy. 

“The supply of such minerals will struggle to meet near-term demand. In addition, there’s significant underinvestment in these critical minerals, which will exacerbate the supply-demand situation over the near to medium term. The world will be able to meet its net-zero targets only if the mining industry can substantially ramp up production,” PwC said. 

“That places a strategic imperative on the agenda of the Top 40: making major investments in exploration, production, processing and refining in a responsible and sustainable fashion.” 

Critical minerals are required for a range of green energy applications, from batteries for electric vehicles to wind turbines and solar panels, among others. 

The rewards are potentially mammoth, and the environmental dividend will be a lowering of the emissions linked to climate change — provided such mining is done cleanly. 

“According to recent data, the need for critical minerals is expected to grow over the next three decades, with some estimates suggesting that the annual demand from clean energy technologies will reach over $400-billion by 2050,” PwC said. 

Gold and green

But, intriguingly, the bulk of the glitter in the M&A space comes from an old standby — gold. 

“In 2021, the value of deals among the Top 40 tripled from 2020, while the number of deals increased by 60%. Gold was the key driver of deal activity, representing about 70% of the total value. Gold miners continue to be well-positioned for M&A, given their low levels of debt and high levels of cash due to high gold prices. We expect gold deals to continue as larger companies look to expand their portfolios and the middle tier looks to consolidate.”

But deals involving critical minerals are also gaining ground.  

“Compared with 2020, Top 40 deal-value for critical minerals doubled, and the number of deals rose more than fivefold. This trend is evident across the whole mining sector, which has seen 159% growth in critical minerals deal value since 2019. 

“We expect this trend to continue over the next five to ten years as demand for critical minerals grows and assets with high extraction costs become viable as prices rise.”

These are interesting trends. On one hand, it looks as if gold may be in the final phases of a consolidation drive — which one might expect from an ancient asset class. 

JSE-listed Gold Fields has taken some flak for its recent $5.3-billion all-share offer for Toronto-listed Yamana Gold. But in the wider scheme of things, the deal makes sense. Gold companies that want to grow and maintain their production pipeline need to get in on the action now. 

And gold assets often have green metals such as copper in the mix, which may also help to explain what is afoot here: going for gold can raise a company’s green metals profile as well. 

On the other hand, it’s also interesting to note the rising volumes of deals in the green mining space. 

Although gold represented 70% of all value of M&A clinched by the top 40 miners in 2021, critical minerals accounted for 27%, with almost all of that coming in the form of copper and lithium. 

Other commodities only comprised 3%, or almost nothing effectively. That would include the likes of coal and there are few better signs of its eventual demise than its exclusion from such activity. DM168

This story first appeared in our weekly DM168 newspaper, which is available countrywide for R25.