Summary of Key Points
Recently, mergers and acquisitions (M&A) in the non-ferrous metals industry have been active, driven by the surge in demand for strategic metals such as copper and lithium from the new energy sector (electric vehicles, energy storage), and AI infrastructure (data centers). At the same time, global mine aging, declining ore quality, and geopolitical conflicts have led to supply shortages. Coupled with national policies encouraging listed companies to integrate their value chains, Chinese leading enterprises (such as Zijin Mining and Luoyang Molybdenum) are actively seeking resources overseas. However, M&A also brings risks such as high debt levels, sudden changes in resource-country policies, and volatile metal prices. The competition in the industry has shifted from a simple race for resources to a comprehensive assessment of capabilities encompassing "resources, operations, and ESG (Environmental, Social, and Governance)".
Why Have M&A Activities in the Non-Ferrous Metals Industry Suddenly Become Popular?
In short, three factors have come together: increased demand, reduced supply, and supportive policies:
- Demand: The use of copper in electric vehicles is 3-4 times that in gasoline vehicles (both batteries and motors require copper), and AI data centers consume large amounts of copper. Lithium, as a key component of batteries, sees its demand soar with the growth of new energy.
- Supply: Global mines have been in operation for decades, resulting in declining ore quality (for example, copper mine grades have dropped from 0.79% in 2000 to 0.43% in 2021). New mines are difficult to find (only 14 large copper mines were discovered between 2014 and 2023), and geopolitical conflicts (such as the suspension of operations at Indonesian mines due to mudslides until 2028) have further strained supply. As a result, metal prices are expected to remain high in the long term, prompting companies to secure resources in advance.
- Policies: Governments are explicitly encouraging listed companies to merge and restructure, supporting leading firms in integrating their value chains, which gives them the financial leverage to acquire mines.
How Are Chinese Leading Enterprises Going Overseas to Acquire Resources?
Leading companies are focusing on resource-rich regions such as Africa and South America to address domestic shortages:
- Zijin Mining: Originally planned to spend $28 billion on acquiring Union Gold in Canada (which has 533 tons of gold reserves in Africa), but the deal was modified to a 9% equity investment due to falling gold prices. It also invested $18.2 billion in Chifeng Gold, which owns 583 tons of gold and 590,000 tons of copper, to diversify its resource base both domestically and internationally.
- Luoyang Molybdenum: Invested $3 billion in an Ecuadorian gold mine with 638 tons of reserves, entering the gold industry. It has projects in Brazil and Ecuador, leveraging local expertise to reduce risks.
- CITIC Metal: Participated in Brazilian niobium and Peruvian copper mines to ensure China's copper supply (with a self-sufficiency rate of less than 30%). In 2025, it expects to receive dividends of $278 million from the Peruvian copper mine. These acquisitions not only provide access to resources but also expand product offerings (e.g., Luoyang Molybdenum expanding from molybdenum to gold production) and reduce costs through increased scale.
The Financial Pressure of M&A: Managing High Debt
Acquiring mines requires significant funding, leading to higher debt levels:
- Large and Medium-Sized Mining Companies: These companies, originally in the iron ore sector, spent $4.2 billion on acquiring lithium mines, increasing their debt ratio from 43.5% in 2022 to 60.7% in 2026. They had to issue $2.5 billion in convertible bonds to repay debt and fund new projects.
- Hongqiao Holdings: Became a leader in the aluminum industry after acquiring its assets but faced a debt of $19.6 billion. It raised an additional $12 billion through a private placement, using the funds for wind power (56% allocated) and photovoltaic projects (22%) to support the green aluminum sector.
Hidden Risks of Overseas M&A: Policy Changes and Price Volatility
Overseas acquisitions are not without challenges:
- Unpredictable Resource-Country Policies: For example, Mexico nationalized its lithium mines, resulting in GANFENG Lithium losing mining rights for a project worth $1.67 billion and having to recognize a $200 million impairment. Chile's nationalization of lithium mines could lead to changes in control of SQM, a company in which Tianqi Lithium holds shares, potentially affecting future dividends.
- Volatile Metal Prices: When Zijin Mining acquired Union Gold, gold prices dropped from 1,258 yuan per gram to 886 yuan, causing the stock price to fall by 40%. Zijin quickly adjusted its acquisition strategy to a smaller stake to minimize losses.
The New Competition: Beyond Resource Acquisition, Comprehensive Competence is Key
The focus has shifted from simply acquiring resources to demonstrating comprehensive capabilities:
- ESG (Environmental, Social, and Governance): Companies like Luoyang Molybdenum are making significant contributions in Congo Kinshasa, creating 25,000 jobs and investing $227 million in community projects (such as road construction and school building), which has earned them the support of local governments. Both Zijin Mining and Luoyang Molybdenum have AA-rated ESG scores, higher than many of their peers.
- Localized Operations: Companies like Luoyang Molybdenum have years of experience in South America, collaborating with local enterprises to reduce policy risks. CITIC Metal is upgrading its strategy by incorporating technology, as the separation of valuable minerals (such as rare earths from copper) requires specialized techniques that can improve resource efficiency.
- Risk Management: Alcoa and Rio Tinto jointly acquired a Brazilian aluminum company to share risks. Xingye Yinsi, after acquiring an Australian mine, became the largest shareholder but did not pursue a full acquisition immediately.
In summary, M&A in the non-ferrous metals industry will continue, but companies must evolve from resource collectors to comprehensive operators to thrive in the global competition for resources.
(Note: The mentioned companies are used as examples and do not constitute investment advice.)