Despite the bottom falling out of the lithium price since 2023, Allens expects 2025 to be characterised by a resurgence of dealmaking in the critical minerals sector.
The top tier law firm attributes the nascent momentum brewing within the M&A space to the sheer collapse in the lithium price. With supply running well ahead of demand, the lithium price has tanked by around 80% since January 2023.
If Allens is reading the tea leaves correctly, the sheer value of total deals this year ($14.8 billion) - comparable with 2023 despite deal activity (24) being less than half – dealmaking across the broader commodity market could be on a tear in 2025. Included within the big-ticket deals done this year were Pilbara Minerals’ (ASX: PLS) $560 million Latin Resources (ASX: lRS) acquisition, Allkem’s (ASX: AKE) $10 billion merger with Livent and Rio Tinto’s (ASX: RIO) $10 billion buyout of Arcadium Lithium (ALTM).
Allens partner Charles Ashton expects an emerging, albeit modest price recovery in critical minerals - notably lithium, copper, nickel, cobalt, and rare earths - the prospect of rate cuts early in 2025 and limited bank appetite for funding resource stocks, especially juniors creates a fertile environment for creative (non-bank) dealmaking.
While E&P Financial recently dropped its six-month lithium forecast, the wealth manager now expects spodumene prices to jump to $US850 a tonne in the second quarter of the 2025 financial year, and $US1000 a tonne in the third quarter.
The more prices recover, the more Ashton expects traditional lenders, like banks to use their balance sheets to finance the energy transition.
“Investors will have greater flexibility to expand and diversify their portfolios as funding costs fall and project economics improve,” said Ashton.
What the market shouldn’t underestimate, adds Ashton, is the amount of funding governments (global and local) are willing to contribute to critical mineral projects to dial down the reliance on China.
A recent Goldman Sachs paper highlighted the difficulty facing foreign governments trying to compete with China, which - due to economies of scale, massive capacity, lower labour costs and government subsidies – enjoys major competitive advantages.
As a result, The Australian government is a major funder of Australia’s critical minerals sector and recently upsized its funding package ($475 million) for the construction of Iluka Resources (ASX: ILU) Eneabba Rare Earths Refinery in WA.
Meanwhile, at the bigger end of town rival law firm, Corrs Chambers Westgarth expects BHP’s (ASX: BHP) recent $3.2 billion play to grow its South American copper business through deals with Filo Corp and Lundin Mining to trigger a further round of M&A activity. Underscoring this activity is the growing realisation there are too few copper mines under development to meet growing demand.