Miners seek partners for copper assets as M&A heats up

Sumitomo Metal Mining

11/10/2023 16:25

By Clara Denina, Divya Rajagopal and Julian Luk
       LONDON, Oct 11 (Reuters) - A flurry of copper mining
deals are being lined up for the next six to 12 months, industry
sources said, as producers seek to spread the soaring cost of
new projects for the metal key to the energy transition.
    The capital needed to develop new mines has shot up some 50%
to between $3 billion-$4 billion on average in recent
years, fuelled by declining ore grades, stricter environmental
requirements and rising labour costs. 
    Copper producers increasingly want to share the risk and
costs of projects, and the sector has already seen a jump in M&A
activity, which more than doubled year-on-year to $14.24 billion
in 2022. 
    But big-ticket M&A is not the only solution to rising costs,
and partnership deals are also being mooted, five sources
familiar with the matter said.
    For investors interested in the green transition, that would
allow them to own a portion of existing assets and revenues at a
time when large reserves of top-grade material are hard to find.
 
    Miner and trader Glencore  GLEN.L  has been approached by
potential investors in its Argentine copper projects Minera Agua
Rica Alumbrera (Mara) and El Pachon, two sources said.
    Japan's Sumitomo Metal Mining  5713.T  is among interested
parties, one said. According to Argentine government data, the
projects could produce a combined 435,000 tonnes of copper a
year. 
    Glencore declined to comment, while Sumitomo did not respond
to a request for comment for this story. Both sources declined
to be named because the information is not public.
    Canada's Lundin Mining  LUN.TO  is also in talks with
Japanese trading houses and large miners to offer a 40% to 50%
stake in Argentina's Josemaria mine, incoming CEO Jack Lundin
told Reuters this month.
    Interested parties include the world's largest listed mining
company BHP Group  BHP.AX  and Sumitomo, one source said. BHP
also declined to comment.
    "I think the world understands that demand is increasing for
copper. I don't think they understand the difficulty in the
challenges of maintaining supply, or bringing new supply on,"
Lundin said. 
    "This is where we really have to dig deep, and look at
bringing down costs."
    
    COST INFLATION
    In Chile, Canada's Capstone Copper  CS.TO  is preparing to
sell a 30% stake in its Santo Domingo copper-iron-gold-cobalt
project, while Hudbay Minerals  HBM.TO  is seeking minority
partners for its open-pit Copper World mine in Arizona, two
sources familiar with the matter said.
    A Capstone spokesperson said once the feasibility study for
the project is completed this year, it will progress the
financing plan, which could include a sale of a partnership
stake. Hudbay did not respond to a request for comment. 
    First Quantum  FQM.TO  meanwhile has struck a deal to buy a
majority stake in Rio Tinto's La Granja copper project in Peru
for $105 million, and committed to invest up to $546 million in
the joint venture. 
    It is also looking for investors at its Taca Taca
copper-molybdenum and gold project in Argentina, two of the
sources said. First Quantum declined to comment.
    Professional services firm EY said a review of 132
development projects requiring more than $1 billion of capital
investment showed nearly one in five faced cost overruns, with
an average blowout of $500 million. 
    Recent volatility has exacerbated the problem of capital
productivity that has long concerned the mining sector, its
Global Mining & Metals Leader Paul Mitchell said. "As well as
increased input costs, higher interest rates are pushing up the
cost of capital," he added.
    Most analysts expect the copper market to be in deficit from
2027 due to increased demand for electric vehicles and renewable
infrastructure.
    But that could take years to feed through into fatter
margins for producers, said Farid Dadashev, head of EMEA metals
& mining at RBC Capital Markets.
    "One way to reduce project development risks and
multi-billion dollar investments is through forming a joint
venture with strategic or trading partners," he said. He
declined to give details on the current deals pipeline.

 (Reporting by Clara Denina, Divya Rajagopal and Julian Luk;
Editing by Veronica Brown and Jan Harvey)
 ((Clara.Denina@thomsonreuters.com;))