Mining: Price volatility, cost escalation & geopolitical events to continue

15 February 2024

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Elevated levels of volatility in many commodities persisted through 2023 and we expect this trend will accelerate in 2024. Accelerated boom-bust cycles are now more likely to occur in certain commodities and are currently being driven by geopolitical disruption, the ongoing energy transition and associated investment cycles.

Increased complexity in ESG investing strategies and government intervention, such as FIRB presents additional risk and opportunity for stakeholders.

Whilst iron ore prices remain relatively strong against the long term average, uncertainty regarding the state of the Chinese economy in particular is likely to cause a level of volatility.

Meanwhile coal prices have broadly returned to long term averages, with price support coming from demand through what will be a multi-decade energy transition and supply constraints due to trade flow impacts and declining investment due to ESG pressures.

Some metals critical to the energy transition, such as lithium and nickel have seen significant price falls, with consequences already evident in domestic nickel operations. Meanwhile, the Federal Government has committed funding towards critical minerals deemed essential to the national renewable energy transition, as well as to the manufacturing and defence industries.

We anticipate increasing levels of distress in 2024, particularly where overleveraged mines have recently ramped up production and projects in development experience ongoing construction cost pressure. Distressed and non-distressed M&A will increase markedly, as assets change hands between debt and equity investors with different pricing, timeframe and strategic objectives. Funding sources will continue to diversify, including from key customers with connected offtake agreements, alternative capital and offshore strategic investors.

We expect 2024 will bring an increase in contested transactions, opportunities for complex and interesting restructurings, and challenging disputes. Significant value will be both available and at risk for industry participants.

More from the author, Partner Jason Preston

We anticipate increasing levels of distress in 2024, particularly where over-leveraged mines have ramped up production recently and development projects facing ongoing construction cost pressure.

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