Copper Deals 2019
Mining M&A has hit its highest level for five years and copper assets are scarce. As banks and dealmakers get ready to descend on Cape Town at the beginning of 2019 for Mining Indaba, who’s buying, what’s up for grabs and who could partner-up?
Market Cap: A$13.01bn ($9.34bn)
Australian mining giant Fortescue has shipped over a billion tonnes of iron ore over the last ten years, but under a new chief executive, Elizabeth Gaines, is now looking at deals well beyond its backyard.
Founder Andrew Forrest remains chairman, but Gaines has injected new energy since taking the helm earlier this year, announcing a A$500m ($361m) share buyback, turning a profit on shares in rival Atlas Iron, exploring for copper in Ecuador and inking a new hydrogen research project with CSIRO, the Australian science giant.
Gaines was previously finance director, squeezing costs (biscuits disappeared from meeting rooms) whilst lowering debt from $9bn to $3bn, but the emphasis has now “shifted”, Gaines has said, and when it comes to copper, Fortescue has one huge advantage: whilst other bidders will face scrutiny from competition authorities, Gaines has no copper cash flow, so can jump right over any regulatory hurdles.
Market Cap: A$1.09bn ($783m)
Sandfire Resources was exploring for iron ore in Australia in 2009 when Margaret Hawke, a 25-year-old geologist, hit 75 metres of 2.4 per cent copper. Only three years later and the $400m DeGrussa mine was in cash flow, running like clockwork, generating $3.8bn of metal since. But the reserve life is now dwindling and bankers are privately pitching deals to Sandfire’s board. With a strong track record, a A$1bn market cap and an imperative for a deal, “if there's any company in the mining business that wants to do something, it's Sandfire.”
Market Cap: C$4.1bn ($3.1bn)
Lundin is very publicly in the market for deals. Chief executive Marie Inkster, who took over this year in the midst of a hostile bid for rival Nevsun, says the company will chase down “all avenues” in pursuit of M&A. “We want to get more copper. We want to get more mines,” Inkster told Reuters soon after taking the helm.
Lundin missed out on Nevsun, having been trumped by Chinese bidder Zijin Mining. But chairman Lukas Lundin has a good relationship with Freeport, plus access to debt funding and the stomach for assets in Africa. For his banking advisers in Switzerland, all options are on the table.
Market Cap: £62bn ($78bn)
Rio Tinto has offloaded $11bn of assets under CEO Jean Sebastien-Jacques, returning over $18bn to investors in dividends and share buybacks, but having now tightened-up the portfolio, Rio's focus is turning to growth: it announced a new $2.6bn mine build last month and is weighing deals in copper and aluminium.
Jacques has quipped that he would love to buy the Collahuasi copper mine, owned by Anglo American, but Anglo's chairman Stuart Chambers privately rebuts the idea that the group is for sale. Forced to look further afield, Rio was the underbidder when Canada’s Teck recently sold a $1.2bn stake in its Quebrada Blanca copper mine in Chile. Freeport's Arizona mines? First Quantum's Cobre Panama? Banks are queuing up to pitch Rio deals.
Market Cap: C$8.07bn ($6bn)
One copper company keenly reaching for the escape hatch is First Quantum.
Founders Clive Newall and Philip Pascall have built one of the world's largest copper groups from scratch, but aged 68 and 70, they are now looking to retire and unofficially the company is for sale.
With assets in 12 countries, including Spain and Argentina, First Quantum has a complex portfolio that bidders would need to unpick. Even its head office is split between London, Perth and Vancouver.
Half its metal reserves are meanwhile in Zambia, where the company has been clobbered with a $8bn tax bill (under dispute). But with $4bn of revenue growing at 30 per cent per annum, First Quantum is sitting on more copper than Rio Tinto or Antofagasta. Its largest mine, Cobre Panama, goes into production in the first quarter of 2019 and will soon account for 5 per cent of the global market.
As succession planning comes into sharper focus, First Quantum “could ultimately be sold”, says Scotiabank. For any buyer, according to analysts, “now would be the time to act.”
Market Cap: $15.3bn
Anyone looking for copper could do worse than ponder a breakup of Freeport, the world’s largest listed copper miner. It comes with a “poison pill”, rival chief executives say, in the form of the Grasberg mine in Indonesia, perennially locked in dispute with the government. But if banks offload that to a Chinese bidder, better able to handle the politics, any buyer would be left with some of the world’s richest copper mines, all sitting in Arizona.
Phoenix-based chief executive Richard Adkerson, 71, says he is open to a deal. If a bid were to materialise, “you would see us trying to get the best deal we can get, as opposed to being a company where management is trying to protect itself,” he told Bloomberg earlier this year.
American investor Carl Icahn, known for splitting open companies and taking-out management teams, is also looking for an exit. He bought into Freeport when copper prices collapsed in 2015. The shares have since doubled and he has been selling into the market. “The future, strategically for us, is going to be wide open,” Adkerson says.
Market Cap: A$45m ($32m)
According to banking analyst schedules, throughout Mining Indaba this year buses are due to be shuttling investors to the Prieska zinc-copper project in South Africa's Northern Cape. Owned by Orion Minerals, the mine closed in the 1990s, but copper prices have since tripled and Orion is flying surveys over its acreage, looking to repeat recent drill results, including 32 metres grading 5 per cent zinc and 1.7 per cent copper. Backers include low-key private equity group Tembo Capital.
Market Cap: n.a.
One copper mine being shopped around is Tschudi in Namibia. Owned by Weatherly, it went into production in 2015, just as copper prices bottomed. Tschudi quickly disappeared into administration, but is
now in the hands of John Sisay, a mining investor from south London who led mineral sands miner Sierra Rutile before taking a run at Sierra Leone's presidency.
Described by grey-haired city bankers in London as “a cigar-chomping party animal,” Sisay narrowly missed out on the presidency, but successfully sold Sierra Rutile for $300m and brokers in London are now in “the midst” of finding a new owner for Tschudi’s copper.
Market Cap: £684m ($865m)
The most coveted copper company of 2018 was Australian explorer SolGold: with 2bn tonnes grading 0.6 per cent copper at its Alpala project in Ecuador, BHP and Newcrest are both vying for first place on the share register. But chief executive Nick Mather also has 11 other targets in the country that he plans to test in 2019, positioning himself at the forefront of a rush by the industry into Ecuador.
Will the company be independent this time next year? “The nature of the moon is that it has phases and tides that come in against you and eventually go out and carry you with them,” Mather recently told Kitco News. “SolGold is going to be the world's next great integrated explorer, developer and producer for both copper and gold.”
Market Cap: C$146m ($109m)
If there is one deal that Canadian bankers would like to finally close, it is the sale of Imperial Metals. Backed by oil sands investor Norman Murray Edwards, Imperial generates $300m of gold and copper each year, but comes with debt of C$852m, plus unfunded cleanup costs after a tailings breach in British Columbia. If its flagship Red Chris mine could be unpicked, suitors may finally appear.
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