Mining Markets

News

Copper mining M&A set for lacklustre 2014

Copper mining M&A activity is expected to be limited in 2014 due to a lack of manageable opportunities, sector sources have told www.dealreporter.com.“Projects are getting bigger and bigger,” said one sector banker. If the...


Copper mining M&A activity is expected to be limited in 2014 due to a lack of manageable opportunities, sector sources have told www.dealreporter.com.

“Projects are getting bigger and bigger,” said one sector banker. If the projects where capital expenditure is unsustainable are stripped away, there are very few opportunities left, he added.

Anglo American (LSE: AAL) recently walked away from the US$4.9B Pebble project in Alaska, while Rio Tinto (ASX: RIO; LSE: RIO) is reviewing its holding in the company that now owns 100% of Pebble, Northern Dynasty (TSX: NDM).

Second tier assets are likely to be sold by very large miners looking to manage their portfolios, according to the first banker. In 2013, Rio Tinto sold the Michigan, US-based Eagle mine to Lundin Mining (TSX: LUN), while BHP Billiton (ASX: BHP; LSE: BLT) divested Pinto Valley to Capstone Mining (TSX: CS). Glencore Xstrata (LSE: GLEN) recently announced the sale of the Freida River project to PanAust (ASX: PNA), and is in the process of selling its huge Peruvian project, Las Bambas.

A second sector banker agreed that the majors’ focus would be on optimising their portfolios rather than making acquisitions. Rio Tinto, for example, is ramping up production at its Mongolian mine, Oyu Tolgoi, while Codelco’s Ministro Hales mine is set to become fully operational early this year.

A big increase in supply, leading to a concentrate surplus and uncertainty over pricing, means the red metal – seen for some time as the “darling” of the commodity world – appears to be losing its appeal.

A Tiger Resources (ASX: TGS) company source said the near-term could be challenging for copper miners with a consensus among eight major global banks that the three-year outlook on the copper price is pointing to a downward trend . The price could be headed for US$6,500 per tonne, compared to recent trades of nearly US$7,000 per tonne, noted the source.

This in turn could have an adverse effect on M&A, with many companies likely to strengthen their balance sheets by reducing costs and maximizing production in what could be a fiscally tight copper market from 2014, said the company source.

But copper companies that do not have production or cash flow moving into that lower price cycle are likely going to struggle to survive and will be acquisition targets, the Tiger source added.

While majors’ attention is on their own portfolios, smaller players may take the opportunity to buy, a second sector banker said. Noting recent deals such as Capstone’s acquisition of Pinto Valley and Intergeo’s planned combination with Mercator Minerals (TSX: ML), announced on Dec. 12, he suggested there could be further deals in a similar vein.

Potential takeover targets include Orvana Minerals’ (TSX: ORV) Copperwood project, said the second banker. Orvana said in December it is continuing to investigate a variety of possible options for the project.

Indophil Resources (ASX:IRN), an A$186.5-million (US$166 million) market cap company, has long been touted as a takeover target, noted a sector analyst. The company re-emerged as a target in 2011, when its market cap was about A$420 million, so it is likely to be on the radar of suitors “even more so” now, said the analyst.

Copper Mountain Mining (TSX: CUM), Taseko Mines (TSX: TKO) and Imperial Metals (TSX: III) could engage in mergers of equals, the second banker also suggested.

Potential buyers include juniors, gold companies, mining funds

Tiger is actively looking in the surrounding region of Democratic Republic of the Congo (DRC) and is targeting “a few juniors”, both TSX and ASX-listed, the source explained. “They are in that position; they have a project but no cash, and are struggling to get market support to develop the project,” the source said.

Also in DRC, Mawson West (TSX: MWE) is looking for joint ventures and farm-ins, both in the country and elsewhere, MD Bruce McFadzean told this news service. Available ore bodies would dictate the company’s movement.

Meanwhile, Hot Chili (ASX: HCH), a Western Australian copper developer, is actively seeking to expand its project portfolio in Chile through joint ventures (JVs) or strategic partnerships, as reported by this news service. The A$133-million (US$117-million) market cap miner is targeting projects within a 100-km radius of its flagship Productora copper project located 15 km south of Vallenarin Chile, as reported.

SolGold (LSE: SOLG) MD Alan Parker told this news service the company would also look for copper-gold acquisitions. The company has a portfolio of porphyry copper-gold assets in Australia, The Solomon Islands and Ecuador.

Another potential buyer is X2 Resources, which is reportedly interested in making copper acquisitions. X2 was established in 2013 by ex-Xstrata CEO Mick Davis with the backing of commodity trader Noble Group and private equity house TPG.

Red metal assets might also be targeted by precious metal supermajors. Newmont Mining (NYSE: NEM) CEO Gary Goldberg told the Denver Gold Forum in September that his company might begin to target longer-life, lower-cost assets, and named Peru and Indonesia as potential areas of focus for the company.

Newmont, as part of a potential consortium comprising Teck Resources (TSX:TCK.B), Blackstone (NYSE: BX) and Magris Resources, is reportedly interested in bidding for Las Bambas, which is set to become one of the world’s biggest copper mines once it begins production.

 

— This article originally appeared on www.dealreporter.com and was reprinted with permission.


Print this page

Related Posts



Have your say:

Your email address will not be published. Required fields are marked *

*