Dig deeper into why the transition and uncertainty will drive dealmaking
In the first edition of KWM’s new It's Public podcast, M&A partners Will Heath, Antonella Pacitti, Heath Lewis and Paul Schroder discuss why 2025 is shaping promisingly for resources M&A. Their discussion covers the energy transition and uncertainty themes driving consolidation, the regulatory and dealmaking environment, geopolitical and trade uncertainty and the financing and investment trends all fuelling resources dealmaking.
Below is an edited transcript. You can listen to the full conversation via KWM Podcasts on APPLE and SPOTIFY
Will Heath: Today, we are hugely excited to discuss why we think resources M&A the key sector to watch in 2025. To talk about it, we welcome our mining M&A Maestro, Mr. Paul Schroeder, and from Western Australia, Antonella Pacitti and Heath Lewis.
Heath Lewis: Hello, Will.
Antonella Pacitti: Hello, Will.
Paul Schroder: Thanks, Will.
WH: We believe it's going to be a big year for resources M&A, with a couple of big themes dominating the mining M&A landscape. The first and long arc is the energy transition, and the second and shorter arc is uncertainty. Both drivers favour markets like Australia, with abundant transition resources like copper and other crucial critical minerals, as well as in the uncertainty scope hedge commodities like gold. Antonella, with that in mind, what's on our agenda?
AP: The first is the current landscape and consolidation trend coming out of the mega deals, and certainly Heath and I are seeing that trend across commodities here in the West, along with some opportunism that's sparked by both distressed and some divestment of non-core and non-strategic assets by the big players. We're going to talk about a lawyer's favourite, the regulatory and deal making environment, financing and investment trends, shifting dynamics between the public and private markets. Paul is going to share an interesting counterpoint to the shrinking ASX narrative that we've certainly been hearing for a while.
WH: On the shrinking ASX, a counterpoint to that has been some of the mega deals that we've seen on ASX and new listings. Antonella, you and I've talked about some of those mega deals, including Newmont and Newcrest, Allkem Livent, Alumina and Alcoa. And now you and the team over in the West have got Northern Star. What's the common theme in these mega scrip mergers, and how are they playing out?
AP: Consolidation is the theme. Investor interest in gold continues unabated. It's always been the traditional hedge in an environment of uncertainty. Gold is outperforming every other asset class so far this year.
The trick when we're talking about consolidation and these scrip deals, which is what we're seeing, particularly in gold and commodities M&A, is how do you balance the strength of your own stock and your war chest with potential disconnect with fundamentals that a sustained high gold price can create, especially when it comes to development projects.
We’re seeing a bit of that, but also the flipside, which segues nicely lithium. Heath Lewis, you've recently done an important transaction with Pilbara and Latin?
HL: It is super interesting. Gold and lithium, we are seeing a lot of deal flow, and yet those two commodities couldn't be further apart. Lithium is completely in the doldrums - albeit every now and again there's some suggestion of green shoots - whereas the AUD gold price is absolutely flying.
M&A in both commodities are exhibiting some quite similar themes, even though they are in vastly different places. The all-scrip takeover of Latin resources by Pilbara minerals speaks to two things:
One is a very long-term market or commodity view adopted by Pilbara looking through current pricing scenarios to a world where demand for batteries returns to trend.
The other is the effectiveness of scrip as a currency to allow target shareholders to remain invested, while at the same time not being a drain on the bidder's balance sheet or liquidity in a tough market. Pilbara minerals wanted to be closer to the North American markets, where theoretically the energy transition and the domestic EV market was going to provide opportunity - watch this space in this post-Trump world.
It's also important in the resources space not to forget how important M&A is as another way of obtaining funding for a project, as against a prepaid offtake or debt or project finance or equity capital raising. So you see two commodities performing drastically differently, and yet producing significant transaction volumes and values.
WH: Over to Paul in Sydney, these themes of consolidation and cross-border deals - are you seeing that in other things, like coal and other deals you've been working on?
PS: The reality is there's demand for coal at the moment, mainly met coal, and we saw the very competitive Anglo coal sale process happen last year, and a number of spin-off processes are now underway.
We've seen private capital fill a funding hole for coal projects, and we've seen some capital markets open to funding coal mines too. For example, Denham's Olive Downs coking coal project in Queensland raised $875 million last month from the Nordic bond market. And Saul Patts and New Hope, both active in the coal industry, tapped the convertible bond markets.
With all that and after the very competitive Anglo sale process, it's no wonder that we're seeing a number of coal sale price processes underway on the east coast at the moment. I don't think it's only about met coal. With the data centres’ insatiable demand for energy, we're going to see M&A around other forms of coal.
AP: Flipping back to the energy transition, Will, I'm keen to hear more about aluminium. But maybe let's put a bit of context around it. It wouldn't be a podcast in 2025 without reference to the two T's - Trump and tariffs. Unfortunately for our Australian steel maker friends, an exemption that was looming from heavy tariffs has been pulled out from under us.
But there is still very much an existential imperative in transition-driven commodities. Let's talk a little bit about the geopolitical and trade uncertainty. Will, putting your regulator hat on, what's your assessment of the regulatory environment for getting these sorts of deals done?
WH: In a market where we need to attract capital, and many of the deals we've mentioned are cross-border, we need to be receptive, and we need to have an efficient and fair system around foreign investment and also anti-trust and other regulatory approvals.
It puts a sharp focus on the Foreign Investment Review Board and on the ACCC. On FIRB, the Federal Government promised last year FIRB processes would be streamlined, and I think it's important that we see that delivered this year and maintained beyond the election.
It was pleasing that the Alumina-Alcoa transaction went through in a reasonable time. And we'd want to see transactions, not only of that size, but of the developer size, go through as well, without long delays.
It's also critical that the new Australian merger laws, coming in on January 1 next year, are properly supported by the government. We need to see efficient and fair processes from those two regulators and from others.
Antonella, is this regulatory dynamic playing out across other jurisdictions, and what else about geopolitics do you think will come up in resources deals this year?
AP: Biased though we are, the big M&A in 2025 is positioned to be in resources. Geopolitical uncertainty creates opportunity, even though markets have exercised their uncertainty muscle over recent years, so they're more nimble, more likely to recover.
We've seen a lot of government policy from across the globe aimed at ensuring critical mineral supply. That's created competition for reliable and accessible resources. As President Trump will probably find out, critical minerals are plentiful in many geographies, but the timing for extracting them, delivering them to market, and properly exploiting them doesn't always align with market fundamentals.
The flip side of Australia’s stability is that projects do cost more and there can be a time lag. That creates a potential counterincentive to Australian companies to look offshore, into riskier markets, which brings them into direct competition with some other major superpowers, particularly the Chinese producers.
This still favours incumbents who've got established and diversified portfolios to wear the potential increased exploration and development costs and spread their risk. I think we'll continue to see those big bids and maybe a resurgence of some of those that didn't get away last year. But I think we'll also see more programmatic M&A - small, steadier M&A on a regular basis, building profile and expertise incrementally.
WH: Heath, who the kind of investors are that are coming in and doing these deals? And Paul, on deal structuring to get some of these deals done, how is that going to work?
HL: I do worry that we've set ourselves up to be very facilitative of Western capital and Western economies over the last five or more years, and not so encouraging of particularly Chinese supply chains and Chinese capital. And now we're in a world where the rug's being pulled out from under us a little bit. So we've set ourselves up for one regime, and now we're looking at a very different environment.
We do a heap of work for the super funds. They're very prepared to play in the resources sandpit, but I am circumspect about the preparedness of super funds to operate in the space as a general proposition. I don't think they'll do it unless they've got the expertise, and it's a pretty specialized investment area with potentially significant risks.
WH: What about sponsors?
HL: Super funds have a very significant need to invest and deploy capital, but one of the challenges they have is that they often don't get out of bed for an investment that's $10 or $20 million. There would be many juniors in our part of the world, particularly in critical minerals and battery minerals, that have really exciting projects that tick the energy transition box, but the super funds - if they did - it would either swamp their equity structure or it's just not a big enough investment.
PS: Could they follow a model like RCF? - who I know you've done a lot of work for - where they put in a little bit of debt, a little bit of equity, maybe some royalties, and they help these projects get off the ground, but leave that Australian entrepreneur in control of the project and driving it forward?
HL: 100%. It also encourages the super funds coming in beside a sponsor or a PE fund. It's been proven to work effectively historically. Rather than being a direct investor, they can rely on the technical expertise of these resources-focused PE funds and come in as a co-investor.
WH: Paul, where else are miners going to get capital? Where do you think deals might come from?
PS: There's a broader narrative at play, the shift from public to private capital, and that's global - private capital looking for a home. That has and will continue to drive some of the activity in the Australian resource sector. EMR Capital's got sale processes underway. There's a new entrant to the Australian market - Oryx Global Partners appointed Elizabeth Gaines, the former Fortescue CEO last week. So PE going to continue to be an important player.
There's a need for patient capital in some of these projects. And we are seeing publicly, some sovereigns participating. Australia's NRFC committed $200 million to Arafura rare earths last year. There are Middle East sovereign wealth funds, which we expect are going to be acceptable sources of capital for critical mineral projects. With the US retreat, other capital is going to fill in the gaps. We're hoping that private equity is that source of patient capital to anchor and give expertise to get these projects off the ground.
WH: It brings us nicely to an interesting trend on cross-border funds flow that we've picked up on this year, Paul?
PS: Yes, some silver lining for the ASX. We've seen this influx of Canadian companies coming to the ASX, successfully raising capital here, which is a great story for similar resources economies. I might ask Heath to kick off with the Capstone example.
HL: Capstone is the poster child for this. Off the back of Oz Minerals being taken out by BHP, there was a well-recognized gap in ASX in terms of pure-play copper producers. There's a desire on part of fund managers and investors for exposure to copper, again as a critical mineral benefiting from the energy transition.
I don't think it's impossible to raise capital on TSX in the resources market, certainly at the top end and for quality opportunities. That's what Capstone did - raised capital from TSX around about the same time as coming to ASX. On any measure, the Capstone example has been highly successful. Liquidity has been good. The share price has been strong and very much facilitated by the foreign exempt listing regime that ASX makes available to the bigger end of town.
PS: We've had a number of inquiries from high-quality juniors looking to raise capital on the ASX and take advantage of that. Just to explain, if you're a $2bn market cap or above company, you can qualify in the ASX for a foreign exempt listing, which means that the ASX will mostly defer to the TSX requirements, so you don't have to duplicate things. That is obviously very attractive, that you can access capital without a host of additional regulation. We think if the ASX wants to attract more of these high quality TSX juniors, if they were to reduce this foreign exempt listing threshold from 2 billion to a lower number, that might help get more on the boards. And so that's something to think about as we try and counter this narrative of the shrinking ASX. If anybody listening wants to be a part of a submission, write in!
WH: Thank you, everyone, for your insights. This podcast is part of our "It's Public" publication, where we’ll continue exploring M&A themes in-depth. We also have an upcoming sister publication dedicated to private capital, which we’re excited about – stay tuned for that! Thank you all for joining today, goodbye for now.
