BlackRock would back consolidation among large miners because it would open the sector to generalist investors at a scale that would make it easier to bring on large and complex projects needed for new supply, a portfolio manager said on Wednesday.
The mining industry has an issue around scale, especially compared to other sectors such as technology, said Olivia Markham, speaking at the Australian Financial Review (AFR) conference in Perth.
“When you speak to a U.S. generalist investor, they want large, liquid equities to invest in. Bigger companies have better access to capital, they typically trade at a better multiple, and I think within the context of the mining sector, bigger companies have also got the teams and the people to go and build all these complex projects,” she said.
“We’ve had a wave of M&A, but I see merit in more,” she said.
Among major miners, Glencore (GLEN.L), opens new tab and Rio Tinto (RIO.AX), opens new tab explored a possible merger earlier this year that would have forged a $240 billion company and tied together Glencore’s marketing business and copper assets with Rio Tinto’s operational expertise.
Rio Tinto walked away saying it could not see sufficient cost advantages for the deal. However, there is speculation that Glencore CEO Gary Nagle is still interested in in the Anglo-Australian miner and may look to reopen talks if the Swiss miner’s share price continues to outpace Rio’s. BlackRock holds stakes in both miners, as well as top global miner BHP (BHP.AX), opens new tab.
DEMAND ACCELERATING
Major investments in supply are needed as commodity demand speeds up, underpinned by trends including electrification, AI and defence spending, Markham said. “Commodity demand is simply accelerating, and the commodity intensity of GDP growth continues to go up, and when you look at every exciting theme that’s going on in the market… it all leads back to mining,” she said.
“At the same time, you’ve got a supply side that is massively underinvested, so there’s just no immediate supply response…. we’re going to have to keep having commodity prices move up to incentivise more and more supply to come on line,” she said.
Markham also said that the closure of the Strait of Hormuz was driving a push towards energy independence that would support alternative energy sources. “We are going to be thinking much more about uranium,” she added.
BlackRock’s exposure to Australia has declined across the past five years as it has looked to invest in jurisdictions that have greater copper exposure and as Australia becomes less cost competitive with other countries since COVID, she added.