Mining bosses say that regulatory scrutiny of major mergers is increasing as governments pay closer attention to critical minerals and security of supply in the face of a volatile geopolitical backdrop, but they do not see the shift as a fundamental barrier to dealmaking.
Executives at Glencore (GLEN.L), Anglo American (AAL.L) and Rio Tinto (RIO.L), (RIO.AX) said after half-year results in July and August that antitrust reviews and national interest were becoming more prominent factors when assessing potential transactions, particularly where copper and other critical minerals are involved.
But they said the increased scrutiny was manageable and that, while some reviews could take longer, regulatory hurdles were not making large mining mergers and acquisitions unworkable.
VALUATION, STRATEGY AND SHAREHOLDERS REMAIN BIG OBSTACLES
"Regulators have always taken a look at any M&A," said Glencore CEO Gary Nagle. But he noted that the various watchdogs are now paying even closer attention "given the geopolitics of the world and critical minerals".
Glencore takes regulatory approval into account before pursuing transactions, Nagle said. "Of course, we're not going to go down a route of something that we don't believe is achievable or executable," he said.
The industry's recent record of failed or abandoned mega-deals suggests valuation, strategy and shareholder considerations have been more important obstacles than regulation. Rio Tinto and Glencore held talks over a potential combination while BHP (BHP.AX) made several attempts to acquire Anglo American. Neither transaction came close to completion.
Anglo's proposed merger with Teck Resources (TECKb.TO), however, illustrates how the regulatory landscape is evolving.
China is the last major jurisdiction still to approve the deal and could seek remedies focused on security of supply rather than an outright asset sale, investors say.
The combined group would have a relatively small share of global copper production at about 5%, limiting the case for a structural remedy, while China's large and unutilised smelting capacity could make commitments to supply Chinese customers a more relevant tool.
That would echo China's approach to Glencore's acquisition of Xstrata in 2013. Beijing approved that deal subject to both structural and behavioural remedies, including the sale of the Las Bambas copper project in Peru and commitments to supply Chinese customers with copper, zinc and lead.
GEOPOLITICAL CONSIDERATIONS TO THE FORE
The difference today is the geopolitical backdrop.
Governments are increasingly concerned not only with whether a merger reduces competition, but also with who controls strategically important mines, where critical minerals are processed and whether supplies can be diverted away from domestic industries.
Anglo's sale of its nickel assets to China's MMG is an example of broader scrutiny. The European Commission has opened an in-depth investigation, saying the transaction could enable MMG to divert ferronickel supply away from European markets.
Anglo CEO Duncan Wanblad said mining transactions were taking "probably a little bit longer than they might have done five years ago", with companies needing to allow 12 to 18 months for regulatory approvals.
He rejected the idea that regulation was making deals fundamentally more difficult.
"I have nothing to suggest at this point in time that mining-related transactions are impossible to get done or difficult to get done," Wanblad said.
Rio Tinto CFO Peter Cunningham said the company would be "very, very disciplined" about M&A and needed to "think very, very deeply" about regulatory and other constraints before pursuing acquisitions.
But he described fluctuations in regulatory scrutiny as part of the industry's normal cycle.
