Mining for the future: strategic moves trump short-term shocks in Q3 2024

The global mining sector faced a challenging third quarter in 2024, navigating economic uncertainties, especially in China, that impacted commodity prices, restrained demand, and curtailed exploration budgets.

Yet, as highlighted during S&P Global Commodity Insights' recent State of the Market: Mining Q3 2024 webinar, industry leaders see this period as a time for strategic action rather than retreat. Mark Ferguson, Francesca Price, and Jasper Madlangbayan from S&P Global Commodity Insights outlined the current market landscape, emphasising that while caution characterises the present, long-term consolidation strategies are firmly underway.

Challenging Economic Backdrop

Global inflation eased in Q3, prompting some central banks to consider softer monetary policies. However, economic conditions, particularly in China, cast a shadow over many commodities. China’s struggle to reinvigorate property market demand had repercussions for steel and iron ore prices.

“The Chinese economy has hit a significant roadblock, with growth forecasts undercut by a lacklustre property sector,” Mark explained. “This has had a ripple effect across commodity markets, especially in ferrous and base metals, pushing producers to seek alternative pathways for growth and stability.”

China’s steel consumption continued to decline, reflecting broader economic challenges that kept iron ore prices subdued despite occasional boosts from stimulus measures.

Francesca noted, “China’s commitment to stimulating its property sector brought a temporary uptick in iron ore demand, but the momentum quickly faded. The lack of specifics on the stimulus package has cast a longer shadow over Chinese consumption trends.”

Shifting Focus to Long-Term Assets

Amid short-term demand pressures, companies are increasingly looking to consolidate high-value assets. M&A activity surged in Q3, with major players securing copper and gold projects, anticipating future demand growth tied to renewable energy and electric vehicles. This shift reflects a strategic pivot, as Mark highlighted: “Major mining companies are pursuing development-stage deals, especially in copper, to build portfolios that align with a cleaner energy future. These aren’t quick returns; they’re investments in anticipated demand.”

Notable deals in Q3 included BHP and London Mining’s joint acquisition of the Philadelphia copper project in Argentina—a $3 billion investment underscoring copper’s role as a core asset.

“Copper is increasingly recognised as a metal of the future, essential for infrastructure and electrification,” Jasper added. “This acquisition is more than a regional play; it’s about positioning for a stronghold in global supply.”

Battery Metals: Opportunity and Caution

Battery metals like lithium and cobalt, essential for the electric vehicle (EV) market, have become focal points in the mining sector. Yet, both metals saw price drops this quarter due to oversupply concerns. Lithium prices fell to multi-year lows, and cobalt demand softened as automakers shifted towards lithium-iron-phosphate (LFP) batteries that reduce dependency on cobalt.

“While lithium and cobalt have a bright future, the market is dealing with a significant surplus right now,” Francesca observed. “For lithium, the situation could last until around 2028, and cobalt might see price stagnation beyond that.”

A standout in the battery metals space was Rio Tinto’s acquisition of Arcadium, marking one of the largest deals in lithium to date. Arcadium’s lithium capacity is set to be sourced outside China by 2028, aligning with a broader industry pivot to establish more geographically balanced resources. Jasper explained, “This acquisition is part of a larger strategy to spread risk and secure essential resources outside of China’s orbit.”

Financing and Exploration Activity: A Cautious Approach

High interest rates and economic uncertainty have made financing for new projects challenging. Total funding in Q3 dropped nearly 50 percent quarter-over-quarter, leading to what Jasper described as “a record low for 2024, with exploration budgets scaling back and early-stage projects being postponed.” Exploration budgets dropped three percent year-over-year, with juniors and intermediates bearing the brunt of the decline. “Investor sentiment is cautious, and high-value financing remains limited,” Mark said. “Until we see clearer signs of economic recovery and metal price stability, financing activity will likely stay subdued.”

The Pipeline Activity Index (PAI), which measures exploration and project development, hit an eight-year low in Q3, underscoring the cautious climate.

“In times like these, the sector focuses less on expansion and more on securing foundational, high-value assets,” Francesca noted.

While gold financing was notably affected, junior companies redirected some budgets toward critical minerals like copper and lithium, reflecting a shift in priorities in line with anticipated demand.

Long-Term Prospects Amid Short-Term Caution

Despite economic headwinds, the mining sector’s focus on long-term strategic consolidation indicates optimism about future demand. The M&A activity in Q3 reveals an emphasis on positioning for the future, particularly in copper and gold. Francesca remarked, “The volatility we see now is setting the stage for future stability. These acquisitions and development-stage investments reflect the sector’s confidence that, when the market stabilises, demand for these essential metals will be even stronger.”

As Mark concluded, “This isn’t a period of retreat; it’s a period of positioning. Mining companies are preparing for a future where critical minerals will be indispensable, not only for renewable energy and EVs but for the global economy. The challenges are significant, but so are the opportunities.”

Outlook: Cautious but Opportunistic

With the world on the cusp of an energy transition, the mining sector’s moves to secure essential resources reflect a forward-looking approach. The focus remains on assets with long-term potential despite near-term pressures, financing challenges, and slower growth in emerging markets. As companies consolidate portfolios around high-value development projects, the mining sector appears poised to emerge from this period of uncertainty with a stronger foundation in critical metals essential to future technologies.