Emphasising Grassroots Exploration Over Mergers and Acquisitions

In a notable departure from recent trends, mining companies are being advised to redirect their investment strategies towards grassroots exploration rather than pursuing acquisitions of smaller exploration companies. This recommendation, stemming from a comprehensive report, signals a shift in the industry’s approach to securing future mineral reserves.

The suggestion to prioritise grassroots exploration comes on the heels of a year marked by significant mergers and acquisitions in the mining sector. In 2023 alone, notable deals such as BHP’s acquisition of OZ Minerals in April and Newmont’s acquisition of Newcrest in November underscored the industry’s penchant for consolidation and expansion through acquisitions.

However, the tide appears to be turning as mining companies reassess their growth strategies in light of changing market dynamics and evolving industry landscapes. The report’s recommendation to invest more in grassroots exploration reflects a growing recognition of the importance of securing long-term mineral reserves through self-generated methods, rather than relying solely on acquisitions.

Grassroots exploration involves the identification and evaluation of new mineral prospects from scratch, often in untapped or underexplored regions. While it may require significant upfront investment and time, grassroots exploration offers the potential for discovering high-quality mineral deposits that can fuel future growth and development.

“In mining and metals, the percentage of exploration spend over time compared to the size of markets, like copper, is decreasing,” Deloitte Canada director of consulting Charles Hooper said in the report. “The market size continues to increase, but we’re not seeing equivalent growth in the funding of exploration. It takes approximately 15 years for a mine to go from discovery to production. It’s important that companies think about their decline curves today and determine the role exploration can play in their strategy to replenish and/or grow reserves.”

By shifting their focus towards grassroots exploration, mining companies aim to replenish and expand their mineral reserves in a sustainable and cost-effective manner. Rather than relying solely on acquisitions to bolster their asset portfolios, companies are seeking to leverage their technical expertise and exploration capabilities to identify new mineral opportunities independently.

The recommendation to prioritise grassroots exploration aligns with broader industry trends emphasising the importance of resource stewardship and responsible mining practices. As environmental, social, and governance (ESG) considerations increasingly influence investment decisions and stakeholder expectations, mining companies are seeking to demonstrate their commitment to sustainable resource development.

Moreover, grassroots exploration offers mining companies greater control over their exploration activities and potential discoveries. By reducing reliance on acquisitions, companies can mitigate risks associated with integrating acquired assets and manage their exploration portfolios more strategically.

While mergers and acquisitions will likely continue to play a role in the mining industry’s growth strategy, the emphasis on grassroots exploration underscores a broader shift towards proactive and sustainable resource development practices. As mining companies navigate an ever-changing landscape characterised by evolving market dynamics and increasing ESG scrutiny, the recommendation to invest more in grassroots exploration reflects a strategic response to emerging challenges and opportunities in the sector.