Mining mergers are not hampered by increased regulatory scrutiny, say bosses

Mining executives say regulatory scrutiny is increasing as governments pay more attention to security of supply and critical minerals in the face a volatile geopolitical background. However, they don't see this shift as a barrier to dealmaking. After half-year results announced in July and august, executives at Glencore, Anglo American, and Rio Tinto stated that national interest and antitrust reviews were now more important factors to consider when evaluating potential transactions.

They said that the increased scrutiny is manageable, and while some reviews may take longer, regulatory obstacles do not make large mining mergers or acquisitions impossible to complete.

The biggest obstacles are still valuation, strategy and shareholders

"Regulators always looked at any M&A," said Glencore CEO Gary Nagle. He noted, however, that various watchdogs now pay even more attention to the matter "given the geopolitics and the critical minerals".

Nagle stated that Glencore considers?regulatory approval before pursuing transactions. He said, "Of Course, We're Not Going to Go Down a Route that We Don't Believe is Achievable or Executable." Recent mega-deals that have failed or been abandoned suggest that valuation, strategy and shareholders' concerns were more important than regulation. Rio Tinto, Glencore and BHP held discussions about a possible?combination. BHP also made multiple attempts to buy Anglo American. Both transactions were nowhere near completion. Anglo's proposed merge with Teck Resources illustrates, however,?how regulatory landscape is changing.

Investors say that China is the?last major jurisdiction to still approve the deal. It could pursue remedies focusing on supply security rather than a sale of assets outright.

A combined group with a share of copper production in the world of about 5% would limit the need for structural remedies, while China’s vast and underutilised smelting capacities could make commitments made to Chinese customers more relevant.

This would be similar to China's response in 2013 when Glencore acquired Xstrata. Beijing approved the deal, subject to structural and behavioural remedies. These included the sale of Las Bambas Copper Project in Peru, and the commitment to supply Chinese customers copper, zinc, and lead.

GEOPOLITICAL CONSIDERATIONS ARE NOW PRIORITY

Today, the geopolitical background is what makes a difference.

Governments are more concerned than ever about not only whether a merger will reduce competition but also who controls strategic mines, how critical minerals are processed, and if supplies can be diverted from domestic industries. Anglo's recent sale of its nickel assets in China to MMG is a good example of this broader scrutiny. The European Commission opened a detailed investigation into the transaction, stating that it could allow MMG to divert ferronickel away from European markets.

Anglo CEO Duncan Wanblad stated that mining transactions are taking "probably?a little longer than five years ago", and companies must allow 12-18 months for regulatory approvals.

He denied the notion that regulations made deals more difficult.

Wanblad stated that "I do not believe at this time that mining transactions are difficult or impossible to complete."

Rio Tinto's CFO Peter Cunningham stated that the company will be "very, extremely disciplined" in its M&A strategy and must "think very deeply" before making acquisitions.

He described the fluctuations in regulatory scrutiny within the industry as normal.

(source: Reuters)