Following the hugely positive feedback we received from our copper report entitled ‘Copper M&A – The Cupboard is Nearly Bare’, published in November 2018, we have reviewed copper M&A activity in 2019 and updated the exploration projects section of the report. We previously concluded that the number of late-stage development copper projects that were likely candidates to be acquired was limited. Looking at the latest data, this situation has not significantly changed, and the amount of copper M&A activity in the market through 2019 was low.
Copper industry in better shape: Our previous report highlighted that the copper mining companies were generally in a better financial shape than they had been for some time and that some will have to undertake M&A in the near to medium term in order to refresh their development and exploration pipelines. This gave some optimism for a rise in M&A activity.
M&A opportunities limited: However, we also showed that the opportunities for M&A were limited because: many copper companies that are potential takeover targets have difficult shareholding structures; the number of quality asset disposals from existing copper producers is likely to be a lot lower than in the past; and there are a limited number of late-stage development copper projects with resources of greater than 3.0Mt contained copper that are likely candidates to be acquired.
Low number of M&A deals in 2019: Meanwhile, in 2019 the amount of copper M&A activity in the market has been low, and the market for the raising of finance for juniors has been difficult. In 2019 there were just 20 deals valued at US$3.89bn (>US$10m in value), compared with 28 in 2018 valued at US$11.56bn.
Current M&A opportunities: Some 14 months later we have reviewed the copper projects database within slightly revised parameters and find that there are now 64 development and exploration projects with resources of more than 2.5Mt contained copper and we believe that only 19 of these have the potential to involve third party M&A activity and we conclude that there are just five projects with a ‘High’ possibility of a third party involvement. These are: Cascabel, Los Helados, Viscachitas, Casino, and Santo Tomás. This has been based on our assessment of a number of factors, including economics, permitting, location and geography, resource quality, the structure of existing shareholders, and other project issues. This report also examines some of these factors in more detail.
Copper Price outlook more positive: The low level of M&A is partly a function of the factors highlighted above as well as the relatively lacklustre copper price in 2019 which has hit sentiment towards the sector and held back investment. This lack of investment is only likely to cause supply issues in the longer term. At the same time, the demand outlook remains positive. In the short term it is reported that copper demand in China has recently been particularly restrained following lower investment in the electrical grid system, property, and transportation sector and it is suggested that this could change in 2020. In the medium to longer term, copper demand is expected to rise significantly with increased demand for electric vehicles (EVs). Copper is a major component in EVs used in electric motors, batteries, inverters, wiring and in charging stations.
RFC Ambrian has a track record of over 30 years of providing independent corporate advisory and investment services to the global mining industry, from both a technical and financial perspective.
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For the full 38page report please click here.