Those who have been paying attention to ASX mining shares on the stock market over the past couple of years might have noticed a bit of a trend. Mergers and acquisitions (M&A) in the mining space are all the rage at the moment.
This was brought into sharp focus last month with the blockbuster $60 billion bid for the British miner Anglo American (LSE: AAL). As it currently stands, BHP Group Ltd (ASX: BHP) and Anglo remain locked in a delicate courtship dance. However, we've seen other marriages that have been proposed and, in some cases, consummated, on the ASX recently.
The merger of the old Newcrest Mining Ltd with US gold mining behemoth Newmont Corporation (ASX: NEM) last year would probably be the best example. But there are many others.
A long story short, M&A seems to be the flavour of the month.
This might cause some consternation amongst some ASX fans of mining shares. After all, there are plenty of examples throughout the ASX's history of miners embarking on acquisition sprees when they are flush with cash at the height of a commodity cycle, only to shred shareholder capital when prices fall, but debts remain.
However, one ASX expert not only reckons that this latest wave of M&A is good for investors but also predicts that merger activity is still on its way up.
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Expert: Don't fear ASX mining share M&A
As reported by the Australian Financial Review, BlackRock Mining Trust's Evy Hambro is telling investors not to fear. Hambro argues that, as a general rule, current conditions mean buying other companies or their assets is cheaper and more efficient for miners than building out new mines themselves.
Hambro, whose fund is the world's largest mining fund, has reportedly chided miners for focusing too much on M&A in the past at the expense of shareholder returns. But those are not concerns he appears to currently hold.
Here's some more of what he said:
Right now what we are seeing … is the cost of building new [mine] capacity has risen, we are seeing higher costs of constructing, we are seeing higher risks … around resource nationalism…
So I think the value of assets trading in the liquid market probably doesn't reflect the fully risk-adjusted cost of building new capacity, and I am sure that has caught the attention of many management teams.
We think M&A is just normal business, and there is a point in the cycle when things tend to pick up a bit…. We would be absolutely in support of companies maintaining that disciplined approach to how they allocate capital, and that is an essential part, I think, of maintaining trust with investors and maximising the returns.
So, no doubt that will come as some welcome assurance for many followers of ASX mining shares who might be feeling a little apprehensive about the M&A boom that we've been witnessing. Let's see which company comes up with a marriage proposal next.
