Investor Insights: Anglo American and Teck merger shines spotlight on mining sector

The merger of Anglo American with Teck Resources will create a $50bn copper major. The deal, announced today, will see the new business - Anglo Tech - headquartered in Canada with a primary listing in London. Shares in Anglo American were sent soaring on the "nil premium" deal, which is being dubbed a merger of equals.

It's also a strong signal of a few underlying forces. Some of the reasons mining is looking more interesting:

1. Demand for critical minerals, especially copper
   The new combined company, Anglo Teck, will have ~70% exposure to copper and will be a global top 5 producer of the metal. Copper is central for electric vehicles (EVs), grid infrastructure, data centres, and other clean energy / tech transition uses. 

2. Supply constraints / cost of developing new mines
   Many existing mines have declining ore grades; new mine development is expensive, time-consuming, subject to regulatory / environmental / permitting risk. Supply can therefore be slow to catch up with demand when the latter rises, pushing up prices nad favouring large incumbents.

3. Scale & efficiency gains via consolidation
   The Anglo-Teck merger is described as “of equals,” with ~$800 million per year in cost synergies. Bigger scale helps in reducing unit costs, negotiating power, and potentially leveraging common infrastructure. We don’t know yet if other large mining companies such as BHP or Glencore are looking at this merger and considering a counteroffer.

4. Inflation hedge / commodity price leverage
   Mining companies’ revenues are linked to commodity prices, which often rise in inflationary periods. Also, many miners pay dividends or have strong free cash flow during favourable commodity cycles. Moreover, gold and silver mining companies offer investors exposure to underlying precious metal prices, which have soared this year.

5. The energy transition & electrification megatrend
   Metals like copper, nickel, cobalt, lithium, rare earths, etc., are essential in EVs, batteries, renewable energy, grid modernization. Demand is expected to keep growing. The new Anglo-Teck is explicitly positioning itself as a “critical minerals champion.”

6. Potential undervaluation or re-rating opportunity
   Some parts of mining have been underinvested; negative sentiment in commodities, ESG worries, permitting etc. If those risks get addressed, companies can re-rate upwards. The merger perhaps helps reduce some risk via scale and diversification.

7. Diversification benefits
   Mining companies tend to not all move in sync with broader markets; their fortunes are more tied to commodity cycles and global industrial demand. Including them in a portfolio can add non-correlated components. 

Key stocks (besides Anglo & Teck)

Some of the major mining / metals stocks to be aware of:

• BHP Group — large diversified miner (iron ore, copper, coal). 

• Rio Tinto PLC — another diversified major. 

• Vale SA — big in iron ore, nickel.

• Glencore PLC — diversified, though with complex exposure (metals, energy commodities, trading). 

• Freeport-McMoRan— major copper-focused miner.

• Companies more focused on battery / rare metals (nickel, cobalt, lithium), or rare earth producers, such as MP Materials, or precious metals miners such as Fresnillo, which has been the top gainer on the Stoxx 600 this year.

These names and some more make up the main holdings of the VanEck S&P Global Mining UCITS ETF, which is a popular entry point to the mining sector for investors to gain some broad, diversified exposure.

For diversified copper exposure, investors could check out the Global X Copper Miners UCITS ETF.

More ETFs to gain exposure

Here are 3 more ETFs you might consider to get diversified exposure to mining/metals, each with a slightly different tilt:

Putting it together: What the Anglo-Teck deal implies & how one might play it

So a strategy might involve:

• Holding some equities (majors like Rio Tinto, Freeport, Glencore, Anglo Teck) which have large scale and diversified mines.

• Having a thematic/growth-oriented slice through rare earths or green metals to capture higher upside (but with more risk).

• Using ETFs for diversification and to reduce single-stock / jurisdiction risk