How Market Trends in the Critical Minerals Space are Influencing M&A Deals

Alongside joint venture agreements, mergers and acquisitions provide a chance for both major and mid-tier mining companies to expand and consolidate their portfolios. Junior explorers with strong mineral assets and solid leadership can present a sound investment opportunity.

Fueled simultaneously by the clean energy transition and the race to net-zero emissions, demand for critical minerals such as nickel, lithium and copper is higher than ever. Analysts believe this will cultivate big growth in the market value of these materials. To an extent, we've already seen its beginnings.

According to a June 2022 report from PwC, market capitalization for mining companies targeting critical minerals outperformed the average of the top 40 miners by between 49 to 147 percent. The spike has taken alongside the average merger & acquisition (M&A) deal value increasing by 159 percent since 2019. This trend is expected to continue over the next five to ten years.

Copper made up the largest revenue share of critical minerals in 2021, with prices up 26 percent last year and expected to continue growing over the short term. Demand for the metal is also expected to increase 50 percent by 2040. Yet even this pales in comparison to the growing demand for lithium — according to Benchmark Mineral Intelligence, all the lithium mined this year would supply approximately one month by 2050.

The market for critical minerals is in flux. Changing fundamentals have caused major mining companies to re-evaluate their exposure, while market analysts recommend organizations revisit their deal strategies to identify new ownership and partnership opportunities. The entry of micro-investors and new junior mining companies into the space has the potential to create even further upset, but also even greater opportunity.

Facing down an unprecedented investment landscape

Alongside joint venture agreements, mergers and acquisitions provide an opportunity for both major and mid-tier mining companies to expand and consolidate their portfolios. In recent years, many of these companies have leveraged such deals to gain a larger foothold in the critical minerals space.

Clearly, the companies entering the space can see the writing on the wall and they understand that the current boom is likely only the beginning. These companies are moving to increase their involvement now, before the world realizes the critical minerals market's true growth potential. However, it's imperative that these businesses exercise caution in their dealmaking.

The current state of affairs is unusual, to say the least. COVID-19 was, for all intents and purposes, an economic millstone, greatly slowing M&A activity across multiple sectors. At the same time, Deloitte notes that many richly priced M&A transactions during the pandemic's first year failed to deliver, leading to investor and shareholder displeasure.

This caused many investors to lose confidence in the mining industry, and only recently have companies begun making strides towards restoring it, thanks largely to the ballooning critical minerals market.

With this in mind, the current investment landscape for the mining sector can best be described as one of cautious optimism. Mining organizations are more than willing to invest capital into new businesses or sign joint agreements with junior mining companies. However, these investment targets must demonstrate quantifiable potential before any deal is finalized.

Eyes forward

Most of the current M&A activity in the mining sector follows the same strategy. A mining company recognizes the long term potential of critical minerals, yet lacks a reliable supply of its own. Stakeholders then meet to discuss and assess potential candidates for either acquisition or a joint partnership.

Once a potential investment target is identified, the company assesses that target for its suitability. In some cases, the company may opt to partner with a rival or competitor to facilitate the purchase. In others, the company may just purchase its target outright, increasing the size of its own project portfolio as a result.

The recent amalgamation agreement penned between Abcourt Mines (TSXV:ABI) and Pershimex Resources (TSXV:PRO) offers an example of this in practice. In late November 2022, Abcourt agreed to acquire all issued and outstanding common shares of Pershimex. This resulted in the creation of one of the largest gold exploration portfolios in Quebec, Canada, with Abcourt's claims now spanning multiple gold districts, cementing its future position as a diversified gold producer.

New Age Metals (TSXV:NAM) represents the latter use case, having recently signed a farm-in/joint venture agreement with Mineral Resources (ASX:MIN), an Australian lithium and iron ore producer. Under the terms of this agreement, Mineral Resources has the potential to secure up to a 75 percent interest in New Age Metals' Manitoba lithium division. This is a common trait of such agreements, which typically see two or more companies working closely with one another on projects that may eventually see shared ownership.

A crop of promising juniors

Junior explorers represent a potential sound investment for major and mid-tier producers, depending on their respective investment criteria, which can vary based on a broad set of standards. Junior explorers are growing increasingly numerous as the mining sector continues to pick up steam, but not all exploration companies are created equal. There are several that could demonstrate greater promise and potential than their competitors.

A copper and gold exploration company primarily targeting Peru, Forte Minerals (CSE:CUAU,FWB:2OA,OTCQB:FOMNF) benefits not just from extensive mining expertise, but also a portfolio encompassing over 6,400 hectares of copper-rich landscapes. With increasing market attention on copper, Forte Minerals’ highly prospective portfolio of assets in the world’s second-largest copper producer makes its Peruvian projects an attractive investment or acquisition option.

With its long history of collaboration with Peruvian communities and a leadership and geoscience team with a successful track record in the country’s mining industry, Forte Minerals aims to achieve the best exploration outcomes in the most sustainable and environmentally responsible manner.

Other exploration companies showing good potential as an investment or acquisition target include: Thunder Gold (TSXV:TGOL), which combines geological modeling with a range of human expertise, Val-d'Or Mining (TSXV:VZZ), Peruvian Metals (TSX:PER) and Medallion Resources (TSXV:MDL).

Takeaway

The critical minerals market has fundamentally changed the way M&A deals are planned, assessed and executed in the mining sector. Given that this change has also come hand-in-hand with increased deal value, this is excellent news for investors and mining companies alike.

This INNSpired article is sponsored by Forte Minerals (CSE:CUAU,FWB:2OA,OTCQB:FOMNF). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by Forte Mineralsin order to help investors learn more about the company. Forte Minerals is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Forte Minerals and seek advice from a qualified investment advisor.