• The world’s top 40 miners added 127% in net profit in 2021, but were dwarfed in terms of market cap growth by miners of ‘critical minerals’
  • PwC expects major miners to increase the share of  future facing commodities in the coming years
  • MCs of the top rare earths, graphite and lithium stocks rose 154%, 101% and 56% respectively last year


Coal and iron ore remain the major revenue earners for the world’s top 40 miners, who saw their profits increase by a whopping 127% in 2021.

But they will increasingly need to pivot to critical minerals, according to PricewaterhouseCoopers Australia global mining leader Paul Bendall, as demand explodes for scarce metals like nickel, copper, lithium and rare earths.

Speaking to Stockhead following the release of the Mine 2022 report today, Bendall said a move into metals linked to decarbonisation and new energy generation was likely to accelerate in the coming years.

Over the past year the market caps of the top five listed producers in rare earths, graphite and lithium have spiked 154%, 101% and 56% respectively, against just 7% for the world’s top 40 mining companies.

“They’re going to look at their development profiles and critical minerals will certainly play an increased role in those acquisitions,” Bendall said.

“The smaller companies, no doubt, will be in play for the big miners.

“The increase in market cap, as opposed to the bigger ones, is quite substantial.

“So those shareholders who’ve hung in with those companies have got the opportunity to either cash out obviously, or if they are going to be acquired, you’re going to see premiums paid on top of what the market cap is already, so there will be a handy payday I suspect.”


Critical minerals deals growing in value

Thanks to high prices and low debt levels across the sector, gold continues to be a major driver of M & A action, making up 70% of the deal value across the top 40 miners.

But conscious of ESG and the theme of the energy transition, commodities like copper, nickel and lithium are taking a larger share of the majors’ M & A spend.

Overall M & A spend increased 200% last year, with the number of deals announced rising 60%.

Money spent by the world’s Top 40 on critical minerals projects has increased by 159% since 2019.

High profile examples include Rio Tinto’s (ASX:RIO) US$825 million purchase of the Rincon lithium brine project in Argentina and South32’s (ASX:S32) decision to pay US$2.5 billion for a share of the Sierra Gorda copper mine in Chile amid the BHP spinoff’s internal push to reposition itself as a base metals giant.

Bendall said miners may need to look into jurisdictions they otherwise wouldn’t or consider producing assets with shorter lives than their previous investment thresholds to ensure they can increase their exposure to transition metals.

“Remember the top miners typically look for what we refer to as tier one assets which are long life, low cost. These commodities don’t present themselves geologically often like that,” he said.

“The first thing they’re going to have to do is consider their horizons, their investment criteria and often that’s going to be shorter life assets.

“We have seen an increasing number of deals being done by big miners into critical minerals. Rio Tinto purchased Rincon (lithium) recently, for example, now that was on the back we suspect of the Jadar resource in Serbia being taken off them.

“We’ve certainly had BHP looking at more nickel resources in North America. So I’d expect the big players will move quite swiftly.

“They’re going to have to pay a fair dollar though.”


Coal still has life

While copper, nickel, lithium and even uranium may be considered commodities of the future, the biggest revenue driver next year is likely to be coal, something owing to the unique energy crisis being felt across the world since Russia’s invasion of Ukraine.

Bendall said commodity prices had been extremely volatile in the past year, with coal transforming from an unloved sector to one of the largest revenue generators for the top 40 miners in the space of under a year.

“Coal is probably the one to call out because we suspect coal will become the largest contributor to revenue for these top 40 miners in aggregate next year almost exclusively driven off price,” he said.

“Metallurgical coal’s obviously got steel production use, but we make reference in the report to Glencore getting a payback of two years in purchasing the equity it didn’t own in the Colombian coal mine (Cerrejon).

“So there is a lot of value in an economic sense in coal and we’d expect that will continue on for some time.

“Now, is that two years, five years? I’m not exactly sure. But I think we can safely assume that coal will play a significant role in revenue terms when we consider the top 40 for quite a few years.”

PwC says the strong financial performance of the major miners is expected to be strong agin this year after revenues increased 32% in 2021, with capex up 18% and dividends up a whopping 130%.

Revenues are projected to rise again from US$719b in 2021 to US$833b in 2022 (with coal increasing from 23% to 31% of the revenue mix), but margin squeeze from inflation and delayed capex will make it harder for the companies to grow profits at the same rate.


Aussie companies in the top 40


Spot: 1
Commodities: Iron ore, coal, nickel, copper, potash
Market Cap: $222.4 billion


Rio Tinto (ASX:RIO)

Spot: 2
Commodities: Iron ore, copper, aluminium/alumina, mineral sands, salt, lithium
Market Cap: $166.1 billion


Fortescue Metals Group (ASX:FMG)

Spot: 10
Commodities: Iron ore
Market Cap: $61.2 billion


Newcrest Mining (ASX:NCM)

Spot: 25
Commodities: Gold
Market Cap: $20.8 billion


South32 (ASX:S32)

Spot: 26
Commodities: Aluminium/alumina, copper, zinc, manganese, silver, lead, coal, nickel
Market Cap: $20.1 billion