Focus: Smaller miners' hunger for cash grows as copper prices fall, sparking M&A bets

AIC Mines

24/07/2023 11:00

By Divya Rajagopal and Melanie Burton
       TORONTO/SYDNEY, July 24 - A fall in copper prices is
having an outsized impact on small and mid-sized miners, forcing
many to cut output, and some are now open to raising funds from
new investors to ride out the current downtrend, several company
executives told Reuters.
    Copper is set to play a crucial role in the transition to a
greener economy and cashed-up bigger miners are seeking assets
with longer mine life and high-quality grade ore to meet the
growing demand for the red metal.
    Depressed prices for the red metal due to global economic
growth concerns, however, are forcing some small-to-mid sized
companies to cut back exploration budgets and other expenses.
But that may not be sufficient for them to survive and the
current scenario may pave the way for more M&A in the sector,
company executives and analysts say.
    So far this year, some $22 billion worth of copper M&A has
been launched, according to Reuters calculations, including 
Toronto-based Hudbay Minerals'  HBM.TO  $439 million bid for
Copper Mountain, Lundin Mining's  LUN.TO  purchase of Japan's JX
Nippon Mining and Metals stake in Caserone mines in Chile, and
Newmont Corp's  NEM.N  planned acquisition of gold and copper
miner Newcrest  NCM.AX  for $18 billion.
    Copper M&A more than doubled in 2002 to $14.24 billion from
the previous year, according to an S&P Intelligence report.
    The M&A theme is expected to continue as it is extremely
difficult to develop new copper mines, Stuart McDonald, CEO of
Vancouver-based Taseko Mines  TKO.TO , told Reuters in June.
    Taseko is exploring funding proposals to bring in additional
liquidity to expand its copper project in Arizona, McDonald
said, adding there are significant challenges to permitting new
mines across the world.
    "So the large miners are saying it is difficult to build new
supply, so let's just buy companies," McDonald said.
    Copper prices have been gradually losing steam since hitting
their strongest levels in over seven months in January when
optimism abounded about the reopening of China. On Friday, the
three-month copper on the London Metal Exchange  CMCU3  dropped
by 0.6% to $8,436 per metric ton.     
    
     
    DEARTH OF LARGE MINES
    Chinese research firm Antaike has predicted that global
copper prices are set to fall to $7,000 per tonne or $3.18 per
pound in the second half of this year due to lack of solid
demand growth in the world's second biggest economy. 
    "There are high cost companies that would go out of business
if the copper prices fall below $3.50," Hudbay Minerals CEO
Peter Kukielski told Reuters earlier this month.    
    The lower copper price presents M&A opportunities for
Hudbay, Kukielski said, but it will also get "squeezed" if the
price of copper falls below $3.50.
    With lack of large mines up for grabs, he is expecting that
large miners will be looking to expand their production by
acquiring smaller mines. Hudbay is also open to entertaining M&A
offers at a right price.
    In Canada, mines of junior producer Minto Metals also
presents an M&A opportunity. Backed by investors such as Japan's
Sumitomo Corp  8053.T , Minto Metals ceased operations abruptly
in May over increased costs in running its mine in the Yukon,
according to the company filings.
    The Yukon government, which has taken control of the mine,
told Reuters there are still significant copper reserves
associated with the claims held by the company. 
    "It is possible that a creditor will make an application to
court for the appointment of a receiver to manage Minto's
assets, which could potentially include a sale of the mine," it
added.
    An analyst report by Royal Bank of Canada  RY.TO  published
in June has identified potential acquisition targets, which
include Hudbay, First Quantum Minerals  FM.TO , Ivanhoe Mines
 IVN.TO , and Capstone Copper  CS.TO . First Quantum, Ivanhoe,
Capstone did not offer an immediate comment.
    First Quantum rejected an informal takeover offer from
Barrick Gold  ABX.TO , Bloomberg News reported last month.
Barrick at that time said, it does not comment on market
speculation. 
    In Australia, Queensland-based copper miner AIC Mines
 A1M.AX  has cut back on some spending given current copper
prices, which are now below its March production costs, Managing
Director Aaron Colleran said. 
    "The recent weakness in the copper price has meant that we
have curtailed some small discretionary capital spend but it has
not impacted our longer term goals in any way," Colleran added.
    AIC had raised A$30 million $20 million) equity in February
to expand its copper production.
    David Lennox, a mining analyst with Sydney-based private
wealth management Fat Prophets, said it will be a problem if the
copper price falls further and stays down for longer. "Then it's
a matter of how much cash have you got."
    "For a little pure play producer, they generally don't have
the financial or balance sheet strength to last very long." 

($1 = 1.4865 Australian dollars)

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Copper prices fall from 2022 peak  Copper prices fall from
2022 peak     https://tmsnrt.rs/3rzcrJH
Copper prices fall from 2022 peak  Copper prices fall from
2022 peak     https://tmsnrt.rs/3XZID4T
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 (Reporting by Divya Rajagopal in Toronto and Melanie Burton in
Melbourne
Editing by Denny Thomas and Marguerita Choy)
 ((divya.rajagopal@thomsonreuters.com))