Absa Predicts Increased M&A Activity in South African Mining Sector
Absa, a prominent financial services group, anticipates that South Africa's mining companies will seek new deals as inflation slows and interest rates decline, reducing the cost of financing mergers and acquisitions.
Konosoang Asare-Bediako, an investment banker at Absa Corporate and Investment Banking, indicated that several factors point to a resurgence in deal-making within the mining sector. Asare-Bediako highlighted the ongoing energy transition as a key driver of demand for "metals of the future," suggesting that sectors such as mining, energy, and resources will witness heightened activity.
"We are seeing this play out with BHP’s proposed $43 billion takeover of Anglo American," Asare-Bediako stated, noting that the merger would be one of the largest in the mining industry in recent years. The primary focus of BHP's bid is Anglo American’s lucrative copper mines in Chile and Peru, essential assets given copper's critical role in industrial applications.
Despite rising copper prices, they remain below levels that would incentivize the development of new mines. The current focus on consolidation highlights the need for further investment in exploration and the development of new deposits to meet future demand.
The global hunt for copper assets has drawn interest from oil-rich Middle Eastern countries. Abu Dhabi’s International Resources Holding (IRH) acquired a controlling 51% stake in Zambia’s Mopani Copper Mine in 2023 for $1.1 billion, outbidding competitors like Sibanye-Stillwater. IRH, a subsidiary of the UAE's International Holdings Company (IHC), aims to diversify income streams away from oil. IHC, valued at approximately $240 billion, is chaired by Sheikh Tahnoon bin Zayed Al-Nahyan.
Asare-Bediako also emphasized the need for South African corporations to diversify their earnings beyond domestic borders due to challenges faced by state-owned entities Eskom and Transnet, which hamper economic growth. Corporates with growth ambitions might seek opportunities in G7 economies for hard-currency earnings or in Brics+ economies for substantial growth prospects.
Brics+ nations, with economies now 20% larger than the G7, are focusing on strengthening economic ties and challenging the global economic order established by the G7. This could potentially drive M&A activities among Brics+ countries.
