M&A risks rise with 'heroic price assumptions', says Wanblad

Stokes and Wanblad are a world apart in their chosen professions, and they were half-a-world apart when the issue of heroism surfaced over the weekend.At Lord's, the home of cricket, Stokes staged one of the greatest ever batting exhibitions to almost win the game single handed.In the Queensland capital, Brisbane, Wanblad was speaking at a mining conference and later to Australian media about what comes next for the mining industry as it searches for growth opportunities.The contrast between what happened in London and Brisbane is one for investors to consider because for all the heroism of Stokes, England still lost the game.Losing is the key to Wanblad's warning about fearlessness in mining and with risks growing some mining companies will make what he called "heroic pricing assumptions" to justify investment in a new project or in making a takeover bid.Examples of heroic pricing can be found today across the mining industry where some investment banks are egging clients on to buy stocks for their potential to double, or better, based on commodity price assumptions and possible growth options.Lithium prices in particular have turned normally staid bankers into the stock market equivalent of a Ben Stokes, trying to whack every ball out of the ground.The latest to swing the pricing bat at lithium is Macquarie Bank which on Friday, just as Wanblad was talking at the World Mining Congress, tipped Piedmont Lithium as a double-your money stock which could rise by 104% from last sales at A88 cents to A$1.80.Leo Lithium, a favorite of several stockbroking firms, is on the latest buy list of Australian broker Argonaut with its price tipped to rise by 98% to A$2.18.Wanblad's warning, reported in The Australian newspaper, focused on the developing risk of big miners being encouraged to resume making major acquisitions saying that the "mood music" from investors had changed over the past 12-months.From outright rejection given past merger and acquisition (M&A) failures there was now acceptance as "both miners and shareholders realised that their ability to grow production to meet demand had diminished.""I think some form of consolidation in the form of M&A is very likely to happen given where we are today," Wanblad told The Australian."I think this is more fundamentally driven by the fact that a lot of mining companies are ex-growth, they don't have anywhere to go."Lithium could be the sector most likely to see unrealistic price assumptions because of excess investor enthusiasm and signs of buyers growing wary of electric vehicles (EVs) thanks to well-reported issues such as range anxiety, and insufficient charging infrastructure.Volkswagen's announcement last week that it is cutting back on EV production should have rung alarm bells with investors exposed to battery metals.VW said its EV sales were running 30% below the company's forecasts, leading to the laying off of 300 workers at its Emden plant in north-west Germany.Morgan Stanley, an investment bank, joined the warning chorus in its latest lithium market analysis with a forecast of modest downward pressure over the next six months.But the key to the bank's comments could be found in an observation that if current EV sales trends continue overall sales growth for the year would be around 13% versus the bank's earlier expectation of 28% growth.It's sluggish growth in the global economy which is being weighed down by high (and rising) interest rates and consumer reluctance to spend which is starting to effect commodity demand and making it more difficult to justify high asset values, which is in line with Wanblad's warning."The pressure will build to either find something to do or stop growing and stop developing as a company," he said.But because resource are hard to find M&A deals will happen, "and I suspect there will be one or two destructive deals out of some heroic pricing assumptions."Wanblad said in the last upward swing in commodity and asset values, a period dubbed the super-cycle, mining companies boasted on massive potential project pipelines and how they could be developed in a short time frame, and it didn't really matter what the resources were."Those resources aren't on the books anymore," he said. "So, I think there's a stark recognition that all of a sudden the wherewithal to actually grow doesn't exist anymore."M&A, however, would not fix the problem of a growing gap between supply and demand of resources and can be compared to shifting the deck chairs on the Titanic with exploration and discovery the only long-term solution to matching supply with demand.

ABOUT

SOLUTIONS

LEGAL

SOCIAL

MINER'S RIGHT

M&A risks rise with 'heroic price assumptions', says Wanblad

Already have an account? Sign in here

MORE ON THIS TOPIC

FROM OUR PARTNERS

RESOURCE STOCKS

Forsys Metals' pipeline of catalysts to excite the market

RESOURCE STOCKS

The largest mineable measured uranium deposit in the USA

MOST POPULAR

MINERS

Anglo American shares tumble on planned production cuts

REGULATION

Peru reforms formalisation process following deadly attack

MINER'S RIGHT

Iron ore's unexpected boom rumbles on, defying experts

ENERGY MINERALS

Hopes rise that China's lithium price rout will end soon

RESEARCH

Premium subscribers only

View more

Mining Journal Intelligence World Risk Report 2023 (feat. MineHutte ratings)

Mining Journal Intelligence Mining Equities Report 2023

Mining Journal Intelligence Global Leadership Report 2023: Social licence

Mining Journal Intelligence Project Pipeline Handbook 2023

THE ASPERMONT BRAND PORTFOLIO

Login

Not a Subscriber?

Subscribe Now