Recent activity suggests that companies owning a copper mine or development project will be ripe for acquisition, although the bigger fish may have a hard time swallowing the little fish, because the little fish appear to have no intention of being eaten.
Earlier this month, Lundin Mining (TSX:LUN) made a $1.4 billion hostile takeover bid for Vancouver headquartered Nevsun Resources Ltd. (TSX:NSU), and Newmont Mining Corp. (NYSE:NEM) will pay $275 million for 50% of a copper project that is still years from being developed into a mine.
Newmont has entered a deal to buy the 50% stake that NovaGold Resources (TSX: TSE) has in the Galore Creek copper project in northwest B.C. Teck Resources Ltd. (TSX:TCK.B; NYSE:TCK) owns the other half.
Copper prices have been on a downward slide in recent weeks. Prices went above US$7,000 per tonne in June, but have since fallen to around US$6,250 per tonne. But that dip has been largely attributed to Trumponomics, the resulting the uncertainties over tariffs and trade relations, and other factors.
The longer-term forecasts for copper prices are bullish. Goldman Sachs has predicted copper could go as high as US$8,000 per tonne this year 2018, and the other long-term forecasts is for copper prices of US$7,000 per tonne or higher over the next decade.
That may explain why Newmont is buying into a project that is still years away from being turned into a mine. The Galore Creek project is said to be one of the largest undeveloped copper-gold projects in Canada. But Teck plans to take three to four years just to update a prefeasibility study, so it is several years away from being developed into a mine.
Copper has been called Doctor Copper, because it is an economic thermometer. A key industrial metal, it moves up and down in price in step with economic growth.
Previous to copper taking a nosedive, after the 2008 financial crisis, the demand and high prices for copper came from China’s staggering economic growth.
Global economic growth is now more synchronized, and there is an expectation that the demand for copper has long-term growth prospects, thanks to the growth in electric vehicles and renewable energy.
“With the advent of a lot of the new technology that’s being put into things like electric cars and housing and technology, the demand for copper at least is going to be stable if not increase,” said Newmount spokesman Omar Jabara.
“One attractive feature of Galore Creek, obviously it’s a very prolific and rich gold deposit, but it also happens to be in a desirable and sophisticated mining jurisdiction in British Columbia.”
As for Lundin’s play for Nevsun, its offer of $1.4 billion on July 16 represented a 33% premium on Nevsun’s share value as of April 30, 2018 – $3.58.
Nevsun CEO Peter Kukielski urged shareholders to reject the offer, and since it was made, Nevsun’s shares have jumped to $4.85 per share, as of July 27.
"This latest announcement from Lundin continues to ignore the fundamental value of Nevsun and its assets,” Kukielski said when the Lundin pitch was first made.
On July 26, Kukielski urged shareholders to take no action on Lundin’s offer until the company's board of directors can make a formal recommendation to shareholders.
Nevsun has an operating copper-zinc mine in Eritrea, a copper-gold mine in Serbia and mineral exploration concessions in Macedonia.
