BlackRock sees merit in large scale mining M&A

BlackRock will support consolidation of large mining companies because it would make the sector more accessible to generalist investors at a scale which would make it easier for them to take on "large" and complex projects required to create new supply.

Speaking at the Australian Financial Review conference (AFR), Olivia Markham said that mining has a problem with scale.

When you talk to an American generalist investor, he or she will want to invest in large, liquid stocks. She said that bigger companies had better access to capital, traded at higher multiples, and also had the necessary teams and people to build these large projects.

She said, "We have seen a wave of M&As but I think there is merit in doing more."

Glencore and Rio Tinto, two major mining companies, explored a merger in the early part of this year. The deal would have created a $240-billion company that combined Glencore's copper assets and marketing expertise with Rio Tinto operational experience. Rio Tinto said it could not see the cost benefits of a merger. There is speculation that Glencore's CEO Gary Nagle may still be interested in the Anglo Australian miner. He could reopen negotiations if the Swiss mining company's shares continue to outpace Rio.

BlackRock owns stakes in BHP, the world's largest miner as well as both of these miners.

DEMAND IS ACCELERATING

Markham stated that major investments are required to meet the rising demand for commodities, which is backed by trends such as electrification and AI, as well defence spending.

She said that "everything in the market is pointing back to mining."

She said: "At the same time, your supply side is massively underinvested. So there's no immediate response ..... We'll have to continue to move commodity prices up to incentivise even more supply."

Markham said that the closing of the Strait of Hormuz would push the world towards energy independence, which would encourage the use of alternative energy sources. "We will?be thinking a lot more about uranium," added Markham.

She added that BlackRock's investment in Australia has decreased over the past five years, as it sought to invest in countries with greater exposure to copper and as Australia became less cost-competitive than other countries after COVID. Reporting by Helen Clark and Melanie Burton, Melbourne. Editing by Stephen Coates & Lincoln Feast.

(source: Reuters)