Copper has been identified as the main driver of mergers and acquisitions (M&A) activity in South Africa’s mining sector as the world transitions to a low-carbon economy, according to a new report by audit firm PwC.
“The global pursuit of a just energy transition and the need for consolidation are reshaping the landscape of the South African mining industry,” PwC Africa energy, utilities and resources leader Andries Rossouw said in a statement.
The report considered the problems faced by mining companies this past year and a spike in deals in the sector.
It found that copper has been a vital component of renewable energy technologies such as wind turbines, solar panels, electric vehicles, as well as energy transmission and distribution infrastructure.
According to the International Energy Agency, global copper demand could double by 2040 under a net zero emissions plan. As a result, copper will become “the focal point of some of the most significant and contentious M&A deals in South Africa’s mining sector”.
The most notable example is the takeover bid by Australian mining company BHP for Anglo American. The proposed transaction valued at $49.8 billion, which was initiated in April but rejected by Anglo American, would have created a mining giant because of its impressive portfolio of high-quality assets in copper, potash, iron ore and metallurgical coal, according to the report.
Anglo American argued that the bid significantly undervalued the company, which was not in the best interests of its shareholders.
Mining companies have sought to improve efficiency, productivity and profitability amid a difficult economic climate, market dynamics and global geopolitical tensions, the report said. They have consolidated operations and increased exposure to joint ventures to achieve economies of scale, cost savings, and operational excellence.
This was evident in Impala Platinum’s takeover transaction of Royal Bafokeng Platinum, which was finalised in July 2023.
“The transaction allowed Impala to add to its production base in Rustenburg and to retain critical mass in the area. It will eventually allow for optimised processing infrastructure and other synergies,” the report said.
PwC South Africa mining assurance partner Vuyiswa Khutlang praised the sector for adapting to market conditions and said there was an opportunity for the world to shift to a low-carbon economy.
“Looking ahead, we expect the M&A activity in the South African mining sector to remain robust and dynamic as the industry continues to adapt to changing market conditions and customer preferences,” Khutlang said.
Although the mining sector’s performance has been mixed, gold and diversified minerals miners benefited from share price growth over the past 12 months, with the gold price increasing by 21% in United States dollar terms.
Coal, the backbone of South Africa’s energy mix, has seen its fortunes decline over the past year with prices retracting from their record highs as a result of “regulatory changes in major markets, [which have] curtailed demand for coal-fired power generation”.
The coal price has dropped by 67% over the past two years and by 6% over the past year in US dollar terms, reflecting weakening demand and oversupply in the market, the report said.
“The industry remains impacted by significant challenges, and industry players remain cautious about the level of economic improvement and policies that the government of national unity may implement,” Rossouw said.
