Mining – The energy transition and demand for critical minerals continue to drive activity

Innovative consideration structures

Rising M&A activity levels also resulted in acquirers looking at increasingly innovative consideration structures.  Whilst the majority of transactions remained structured as all cash deals, the rise in industry consolidation has resulted in a number of all-share, or cash and share, transactions.  We also saw increasing levels of contingent consideration, in the form of royalties, price-linked earnouts, payments linked to Final Investment Decision (FID) for development projects, contingent value rights linked to future production and resource discoveries, and also some deferred consideration arrangements.    

Warranty and indemnity insurance

2024 also saw warranty and indemnity insurance becoming increasingly available in mining transactions. A feature which is now more or less a given on many M&A deals outside of the mining and natural resources sector, the uptake for W&I insurance has traditionally been slower in the mining sector.  This has been linked to various factors, including a lack of insurer appetite due to the geographies typically involved in mining deals, insurers seeking to impose broad exclusions including for environmental risks, and high insurance premiums.  However, as the W&I market has grown and become more competitive, we have seen some of these hurdles reduced or even removed completely, making a W&I policy now a viable option of many transactions in the sector. For more information on W&I, see our piece on Due diligence, deeper dives.

The availability of relatively low-priced W&I policies and the seller friendly nature of English law have converged on a trend of sellers choosing English law for their sale documentation, even where there is no other nexus to the UK.

Regulatory clearances

Whilst approvals from host governments have for a long time been a common feature of transactions in the sector, over recent years we have seen increased regulatory oversight for mining deals in the form of competition/merger control and foreign direct investment ('FDI') approvals.  The FDI landscape in particular has changed as countries have sought to control foreign investment and protect their critical minerals supply chains.  This has led to enhanced regulatory oversight on mining deals, with increased conditionality and more protracted timetables. We discuss how to manage the regulatory risk in our piece Regulatory risk, some give and some take. This, in turn, has brought into sharper focus for acquirers the protections they need during the interim period prior to completion and the termination rights they want in order to be able to walk away from the deal.  We expect this will continue to be the case in 2025. The world is rapidly moving toward critical minerals trade blocks, with some African and South American nations still to choose a side.

Transactions subject to shareholder approval

While transaction completion certainty is often desirable, certain transactions for publicly listed companies are subject to shareholder approval. Though the relevant triggers for shareholder approval may vary between jurisdictions, they may typically include transactions of a value above a certain threshold (and notably the rules in the UK were relaxed during 2024 to reduce the number of transactions requiring shareholder approval), or for the approval of a scheme of arrangement. These approvals require consideration in the context of shareholder alignment and due diligence requirements. Given the potential for deal disruption, acquirers must weigh the perceived benefits against the potential risks that may arise from the duration and outcome of shareholder decisions. The need to closely manage shareholder relationships and communicate the strategic rationale for the M&A activity becomes vital in securing necessary approvals, and must be considered in the context of transaction documentation and negotiations. As the global mining sector evolves, the capacity to navigate these complexities efficiently will undoubtedly play a crucial role in the successful execution of M&A transactions.       

Outlook for 2025

The impact of geopolitics is an area which is expected to continue influencing the mining sector in 2025, with the IEA emphasising the importance of security of supply given that some markets (such as for nickel, cobalt and lithium) rely heavily on a small number of significant producers.  M&A activity may pick up as some companies look to restructure their investments in the critical minerals space as a result of geopolitical considerations.  

With the introduction of tariffs (notably in the US) and export controls in China, there could also be upward pressure on certain commodity prices which could impact the appetite for M&A.

The energy transition will continue to shape the trajectory of the critical minerals industry, especially for copper, lithium, nickel and zinc, and while prices for some commodities may currently be volatile or witnessing cyclical lows, demand is expected to climb rapidly in the next decade.  Although this may create opportunities for M&A, it remains to be seen how the concentration of supply in certain regions and increasing protectionism over natural resources may impact these opportunities.

And in a continuation of a theme from recent years, we also expect to see more private capital (both debt and equity) funding transactions in the sector, given some of the challenges and costs of financing from traditional financial institutions.

All in all 2025 will be another year of heightened activity in the sector.