Rio-Glencore Merge? The Commodity Cycle Is Beating – Fat Tail Daily
The big miners are getting optimistic about the future and that’s causing them to react predictably with major growth ambitions… Read on to discover how this cycle could play out over the coming years and ideas on how to take advantage.
You might have seen the headlines last week… Rio Tinto and Glencore secretly pondered the world’s largest-ever mining deal in the second half of 2024.
As the AFR put it, the merged entities would have created a ‘$260 billion behemoth’, overtaking BHP as the world’s biggest mining company:
Mining Memo’s Take
No doubt, activity is picking up in the mining M&A playground.
Growth ambitions are rising…
The world’s biggest miners are optimistic about the future, reacting predictably and as expected at this point in the cycle.
Last year, BHP announced a $9.8 billion expansion of Escondida, the world’s largest copper mine.
And don’t forget its $74 billion attempt on Anglo American.
The pivot towards growth is underway. And that follows a decade-long drought of underinvestment in the base metals sector.
But as excitement builds, a new generation of ‘cycle victims’ will emerge.
Companies falling foul of the boom-and-bust nature of this industry!
You see, the ‘smart money’ was shifting into growth projects 3-5 years ago.
In other words, at the bottom of the cycle.
Back then, acquisitions demanded only modest premiums, and companies had access to abundant machinery and labour.
These are the stocks I target at Diggers and Drillers.
Companies that were deploying cash into acquisitions or developments years ahead of conditions turning bullish.
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These counter-cyclical movers could benefit the most as the cycle turns bullish over the next 12-18 months.
Leveraging their growth projects by ramping production into rising commodity prices.
But another strategy at this point in the cycle is to focus on juniors with undeveloped deposits.
When FOMO hits the markets, the juniors holding shovel-ready projects could shine bright.
So, who will be the buyers of these projects?
A decade ago, the world’s largest mining companies faced massive impairment costs on their assets.
They sold off quality projects at colossal discounts.
Shut down exploration, laid off staff, and cut mine development.
Today, the reverse is underway; they need these projects back!
And with mega-deals being announced, metal prices nearing all-time new highs and rumours of a commodity super-cycle underway…
A new era of speculation is dawning in the mining industry.
Get set for an exciting year ahead!
But make sure you focus on the right companies to maximise the opportunities in this upward leg.
Until next time,
Regards,
 |
James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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All advice is general advice and has not taken into account your personal circumstances.
Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.
James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle.
With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One.
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