Mining merger mania: The story behind the red-hot commodities sector

It has been an eventful start to 2026 for the mining sector with extreme levels of volatility in global metals markets and talks over a blockbuster $260 billion merger between Rio Tinto and Glencore. 

While a Rio/Glencore merger is off the table for now, both of these developments reveal a truth that, for all its reputation as an ‘old economy’ industry, mining is central to the ‘new economy’ of renewable energy, electric vehicles and AI and, in particular, the electrification of global infrastructure required to facilitate this shift to a new era.  

Why miners matter  

The manager of investment trust BlackRock World Mining, Evy Hambro, says: “Governments are now acutely focused on securing materials – whether through policy or tariffs. That’s made the sector far more topical politically and highlighted the long-term robustness of demand. Investors are starting to reassess what the right price is for these assets, given their strategic importance and scarcity.” 

The focus of this article is on the global diversified miners of industrial metals as opposed to the precious metals mining space which has benefited from rapidly rising gold and silver prices. 

Miners are dwarfed in terms of their market weighting relative to say technology companies – accounting for less than 4% of the MSCI All-Country World Index currently compared with more than 10% at the mid-noughties peak. However, the sector has performed strongly in recent years as commodity prices have surged.                     

A recent pullback in metals prices has created a lot of noise around the sector but Berenberg analyst Richard Hatch argues the underpinnings of global metal prices remain intact: “We fundamentally believe that we are in the early stages of a mining super cycle, underpinned by a range of different demand drivers, with price moves exacerbated by tight supply and dislocation of physical commodities from end-markets, creating physical tightness.” 

What drives the mining sector?

In the short term, and as a general rule, what happens in China, the world’s largest consumer of a broad spread of commodities, often dictates sentiment towards mining stocks. In the longer term though, investors need to consider the role of mining companies in these emerging themes.

These themes are perhaps most obvious in the copper market which is trading close to record levels. Copper has long been seen as a good barometer of the health of the global economy, earning it the nickname ‘Dr Copper’. The metal is a critical component in the manufacturing of electronics, homes and infrastructure. 

The roll-out of AI, electric vehicles and renewable energy are all heavily reliant on copper thanks to its role as a critical component in electrical systems. Copper is a highly conductive metal which transports electricity more efficiently than almost all alternatives, is resistant to corrosion and has high thermal resistance which prevents overheating.  

Bloomberg Intelligence analyst Alon Olsha says: “Big miners’ exposure to copper is rising and set for a multi-year high of over 35% of EBITDA (earnings before interest, tax, depreciation and amortisation) in 2026, up from 14% eight years ago. Much of that shift reflects higher copper prices and non-core asset sales that have concentrated portfolios rather than expanded copper volumes.  

“Rio Tinto is a notable exception. Helped by the ramp-up of Oyu Tolgoi [a mine in Mongolia], it has grown copper output by 54% since 2019, while BHP has made more modest gains of 11%.”  

Jargon busting –  key terms and metrics   

Resources and reserves 

The Joint Ore Reserves Committee (JORC) code is a widely used mineral deposit classification, particularly among UK-listed miners. 

• Inferred resources: Estimates of tonnage, grade, and mineral content made with low confidence.
• Indicated resources: Economically viable mineral occurrences sampled sufficiently to estimate metal, grade, and tonnage with reasonable confidence.
• Measured resources: Indicated resources with further sampling, allowing high confidence estimates of grade, tonnage, and physical characteristics.
• Mineral reserves: The economically mineable portion of measured or indicated resources.  

Tailings 

Material remaining after valuable minerals are extracted from ore. As mining techniques have improved, tailings have often been reprocessed to recover additional minerals.  

Grade 

The concentration of a valuable mineral or metal in ore, usually expressed as a percentage or per tonne. Ore is mined and then refined to extract the mineral. Below certain grades, mining or processing is not economically viable; these thresholds vary by project. For copper, a typical good grade is around 1%, though some mines operate profitably at 0.5% or lower.

Why is M&A happening?  

As Olsha observes, the scramble to increase copper output is a key driver for M&A in the sector which according to data from law firm White & Case hit a 13-year high of $93.7 billion in 2025: ‘Materially reweighting earnings toward copper can’t be achieved through organic growth alone, suggesting dealmaking will remain a defining feature of the sector for years.”  

The manager of investment trust BlackRock World Mining, Evy Hambro, agrees copper has helped push deals in the mining space but also flags the role of other metals. 

“As long as it remains cheaper to buy than build, M&A will stay attractive. In many cases, it’s more economical to buy an asset that’s already in production than to develop a project from scratch. 

“It’s not just about copper – there’s a huge amount happening across rare earths and other critical materials. But on copper specifically, the outlook is very attractive. We see stronger demand growth than in the past and ongoing risks to the supply side. Existing assets are ageing and becoming less productive, while adding new supply is increasingly difficult. That supply demand dynamic looks compelling.” 

As companies react to the increased demand implied by emerging technologies by investing in new projects and technologies, there is a risk the capital discipline and accompanying generous dividends which have been a marked feature of the sector in the past decade or so will be abandoned. 

Dividends have already started to retreat from the high-water mark seen in 2021 and 2022 when significant inflation in commodity prices lifted earnings and cash flow. 

Hambro says: “With scars from the last cycle are still fresh we’re less likely to see a repeat of the excesses seen 15 years ago when headline grabbing M&A and big capex plans were common.” 

However, Hambro does make a case for why returning cash to shareholders is important. “When commodity prices generate margins in excess of needs, those surplus returns should be fairly shared with the investors who back the companies. Strengthening balance sheets is essential, but so is returning capital in a consistent, disciplined way rather than reinvesting everything.” 

Different approaches to mining  

There are three main mining methods:

• Underground mining: Used for deeper deposits and more expensive. Access is via horizontal or vertical shafts, with explosives and machinery used to blast and tunnel through rock.
• Surface and open-pit mining: Used for shallower, often lower-value deposits, extracting minerals from an open pit at the surface.  
• In-situ mining: Dissolves the mineral in place and processes it at the surface without removing rock. 

What makes a successful miner?  

The investment criteria employed by Hambro when looking at the mining sector encompasses several different means of identifying value.  

“We always start with the fundamentals. Value begins with geology – what’s in the ground determines everything. Then we look at location and fiscal terms, because those shape the risk profile. And finally, we assess management: do they deliver, and do they allocate capital responsibly?” 

“The biggest driver of future returns is the commodity price – and its volatility – and how cash flow from the mines is reinvested or returned to shareholders. Management has complete control over that. It’s why we spend so much time with teams: understanding strategy, reviewing investment plans and gauging discipline.”  

Challenges facing the mining sector  

As well as managing costs and dealing with geological and operational issues, a key potential challenge for miners is contending with so-called ‘resource nationalism’ whereby governments assert greater control or even seize resources in their country.  

Hambro acknowledges this as a risk. “Mining assets are immobile, which makes them easy targets for governments facing rising debt, higher social spending and growing defence bills. The risk is that governments try to take too much, which ultimately deters inward investment.” 

A further battle miners face is to make improvements on ESG (environmental, social and governance) factors to ensure potential purchasers of their raw materials are comfortable with the way their businesses are being run.   

What are investors’ options in the mining space?  

Through a mixture of listing changes and mergers the number of diversified miners listed in London has reduced significantly. With the list set to get even smaller if the tie-up between Rio Tinto and Glencore were to be revived. The table shows the remaining industrial metals mining outfits in the FTSE 350. 

It is worth noting that valuations in the mining sector have begun to catch up with higher metals prices and expectations for future growth as the chart demonstrates.                      

Diversified exposure to mining is possible through funds. The aforementioned BlackRock World Mining offers diversified exposure to global miners with ongoing charges of 0.95%. A lower-cost alternative is tracker fund Van Eck S&P Global Mining ETF which has ongoing charges of 0.5% and tracks a basket of global mining firms including BHP, US-listed Freeport-McMoRan and Brazil’s Vale.