Tin mining does not stand at the centre of attention of the mining community. The global tin market is small compared to markets for major mined resources such as iron ore, coal, copper and gold. Most of the material is mined in developing countries and few large mining firms are involved in the business. However, as growing demand leads to supply shortages and high tin prices, more and more miners are paying attention to the metal. Should more miners step into the tin mining game?
Tin prices have increased from prices in the range of US$2-3 per pound in the period 1990-2000 to levels around $10 per pound in the period after the global financial crisis. The gravity of demand for the metal has shifted from production of tin plate and cans to use of the metal in solders, mainly used in technological appliances. Global demand for tin was relatively constant in the period 1960-1990, but has doubled in the last two decades to approximately 350,000 tonnes annually. Contrary to the general trend in the mining industry, the tin mining industry has not embarked on massive investment programs to add new capacity. Environmental and political challenges for some of the largest producers have hindered expansion, leading to a situation in which the industry faces supply shortage in the medium term. To understand if this poses an opportunity for the large mining houses to step into tin mining, we need to understand the current tin mining landscape.
Most of the world’s tin mining and refining takes place in China and Indonesia, which together account for some two thirds of global production. A large part of the production in these countries is in some way government controlled, enabling the Chinese and Indonesian governments to manipulate output directly and prices indirectly. With Chinese industry accounting for more than a third of global consumption and all of global growth, the Chinese government has an incentive to keep prices relatively low, while Indonesia would like to see prices go higher. Other tin producers of significant size are Bolivia, Peru, Thailand, Myanmar, Malaysia, Australia and the DRC.
From a company perspective, tin mining is a fairly consolidated business, with the largest 10 corporate players accounting for more than 90% of global production. None of the major international mining firms play a significant role in the tin mining industry. Although some of the best-known tin mining operations are dredging operations, the bulk of tin production comes from conventional mines. As such, technological skills should not hinder the large miners in entering the industry. Because many of the large producers have strong geographical ties and resulting limited-capacity expansion potential, the growth of the industry appears to create opportunities for new entrants in the short term. Clearly, any investor in the tin industry will need to form an opinion about the long-term attractiveness of the industry. With the majority of tin being used in appliances, the next phases of growth in China, shifting from construction to consumption, is likely to keep growth going for several decades. The probability of success of substitutes for tin as solder and the potential for tin recycling to reduce future primary metal demand will need to be considered.
Who should we expect to enter into the tin mining industry? Despite the attractiveness of diversifying the portfolio, the large diversified miners are not likely to step into tin. A key business development consideration for these firms is the potential to establish a mining district of significant size, and the tin mining industry is simply too small compared to their key asset holdings to be able to build up a serious business unit. With the very long lead times for organic growth into the industry, M&A would be the ‘easy’ option for entry. However, very few of the large tin producers appear to be attractive acquisition targets because of their government ties, mature asset base or challenging geographic location.
Various junior companies are currently working on promising tin mining projects, notably in Australia and Morocco. Under current market conditions, most of these juniors are unlikely to be able to access the capital to develop their finds in isolation. Takeovers of juniors with promising tin projects by small producers or mid-tier miners looking to diversify appears to be the most probable development in the industry. As tin often occurs in poly-metallic deposits, base metal producers will be most interested in adding tin to their portfolios. With two or three mid-tier western mining companies expanding into tin, the industry could expect a serious inflow of exploration funds that might change the production landscape in the longer term. The game of tin mining is open to new players.
By Wilfred Visser
Wilfred Visser works in the M&A group of a mining company included in the S&P500 and has a background in strategy consulting. He holds both a MSc. Mining Engineering from Delft University of Technology and an MBA degree from a top-tier business school.