Three years ago, I posed the question in this column whether it was deal time again for the big mining companies. Now it seems appropriate to repeat the same question, given that BHP (BHP) has entertained Oz Minerals (OZL:ASX) with a near-$6 billion takeover offer.

Back in February 2019, it felt like a turning point for the mining sector. Commodity prices had picked up, the US/China trade war appeared to be past its worst, and China’s increasing stimulus measures would drive further demand for metals.

At the same time, miners were busy paying down debt and operations were significantly more efficient.

History suggests miners have a habit of making big acquisitions when commodity prices are high. While my article three years ago was perhaps a bit premature, since then we’ve had a massive rally in commodity prices and the mining sector has seen a big uptick in earnings. Investors have been rewarded with big dividends and share price gains.

With the prospect of a global recession upon us, how do miners keep investors interested and on side? After all, shares across the mining sector have been in retreat since April as investors panic about shrinking demand for commodities if economic activity continues to weaken.

One answer could be to make big acquisitions. After all, investing in this sector is about taking big risks to make big returns. It would give investors something new to talk about and, importantly, for them to speculate as to what future rewards they might bring.

Investors in this sector love nothing more than something new entering a miner’s portfolio, whether that’s a big discovery or buying new projects that bring the promise of bigger earnings.

BHP hasn’t really had anything exciting to offer for some time apart from the fact its copper and nickel products are key components in two revolutions: global investment in renewable energy and electric vehicles production.

Buying Oz Minerals would strengthen its position in these important commodities and provide even greater scale, making it potentially more attractive to investors looking to play these trends.

Oz Minerals knows its assets could be worth a lot more in the future than today, and so it instantly rejected BHP’s approach. That means BHP will have to dig deeper to win the prize.

Herein lies the problem. Miners have been restrained when it comes to acquisitions for the past decade, still feeling the pain of having overpaid during the last commodities cycle and suffering large asset write-downs and ballooning debts. This pain is still lodged at the front of their mind.

Investors have become used to large dividends from BHP and the scale of this payout could be threatened if goes back on the acquisition trail.

Standing still may not be an option. No-one wants to be left behind in the sector and there could be a major bout of FOMO – fear of missing out – if someone else buys Oz Minerals.

I would expect to see BHP come back with a higher offer very soon. Let’s just hope it doesn’t get carried away and pays too much, meaning it can’t make an attractive return on investment.

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