Critical Minerals M&A Set to Surge in 2025: Allens Report

Dealmaking in the critical minerals sector is poised for a significant upswing in 2025, driven by a projected rebound in prices, increasing government involvement, and creative financing strategies. Despite a turbulent 2024, with new supply outpacing demand and causing price declines, long-term demand for critical minerals is growing due to the expansion of clean energy technologies and the global energy transition. This analysis is detailed in a report by Allens, a leading international law firm. Allens, with a heritage of shaping the future for its clients and communities, has a global network of 41 offices in 26 countries through its alliance with Linklaters.

In 2024, the critical minerals market experienced a downturn with prices of lithium hydroxide, lithium carbonate, and spodumene crashing more than 80% after reaching record highs in 2022 and 2023. This price volatility affected financing availability and deal-making activity, with the number of M&A deals falling from 49 in 2023 to 24 in 2024. However, the total deal value for 2024 was markedly higher at $14.8 billion, compared to $5.3 billion in 2023. Lithium deals led in volume and value, with a total of $24 billion from 2020-2024.

Several major transactions occurred in 2024, indicating underlying strength in the sector, including:

• Albermarle’s abandoned bid for Liontown for A$6.6 billion
• The merger of equals between Allkem and Livent for A$10 billion
• Rio Tinto’s proposed acquisition of Arcadium Lithium for A$10 billion
• Pilbara Minerals’ acquisition of Latin Resources for A$560 million
• SQM and Hancock Prospecting’s acquisition of Azure Minerals for A$1.7 billion

Interest rate cuts in the US and Europe, along with the prospect of rate cuts in Australia, are expected to spur increased M&A activity in 2025. Falling funding costs and improving project economics will give investors greater flexibility to expand and diversify their portfolios. However, foreign investors, especially those from non-allied jurisdictions, may face headwinds due to new government policies aimed at securing critical mineral supply chains. Careful planning and regulatory engagement will be essential for these investors to obtain the necessary approvals.

Governments globally are increasing their involvement in critical minerals to address geopolitical risks associated with China’s dominance in processing and battery manufacturing. Australia, for example, has committed an estimated $7.1 billion over 11 years to support critical minerals refining and processing. Additionally, the Western Australian government has announced a $150 million Lithium Industry Support Program. The Mineral Security Partnership Finance Network is designed to facilitate a coordinated approach to critical minerals project financing by development finance institutions.

In 2025, government finance bodies are expected to invest directly in critical mineral projects and entities, even in the absence of private sector capital. International cooperation on critical mineral investment strategies among like-minded partners is also anticipated. These transactions will likely face greater geopolitical and regulatory scrutiny.

Creative financing strategies are expected to be crucial for developers, as traditional greenfield project financing has been challenging. Government and offtaker funding will likely supplement traditional bank financing. Customer finance, in the form of debt, offtake prepayments, and convertible notes, will also likely play a larger role, as customer lenders prioritize product acquisition over debt repayment.

Although the future remains uncertain regarding the policies of the incoming Trump administration, it is believed that bipartisan support will ensure US government support for critical minerals remains strong. For example, the U.S. government has offered US$700 million to ASX-listed Ioneer Ltd to build a lithium mine in Nevada.

It is also worth noting that the Australian Government has increased funding for Iluka’s Eneabba Rare Earths Refinery project to a total of $1.725 billion. This investment demonstrates a commitment to establishing a domestic rare earths supply chain.

While government scrutiny is understandable, the lack of clear guidance on foreign investment in Australia risks hindering project development. The Australian government has indicated that investments in critical minerals will face greater scrutiny to protect the national interest, but has not provided clear guidance on what will be considered contrary to the national interest. This ambiguity risks deterring foreign capital that is vital for project development.

Critical minerals such as lithium, nickel, copper, vanadium and rare earth elements are essential for technologies that support the global energy transition. The demand for these minerals is expected to grow as electric vehicle sales increase. The market for critical minerals is known for boom and bust cycles. Those who are able to ride out the current pricing downturn are likely to benefit from the inevitable market upturn. Allens is committed to bringing its talent, expertise, and insights to continue solving their clients’ toughest problems and creating ways forward to help them thrive.