Big copper producers have juniors in their sights as supply tightens
Merger and acquisition activity is hotting up in the copper space as the major producers look to the smaller players to help them shore up production.
And potential buyers are willing to pay a premium.
OZ Minerals (ASX:OZL) this week made a $444 million offer for Avanco Resources (ASX:AVB) – a deal that values the junior at more than double its pre-offer market cap of $189 million.
“I think what’s happened in the copper market is the professionals from BHP and Rio Tinto down understand that the pipeline of projects is few and far between,” Altona Mining (ASX:AOH) managing director Alistair Cowden told Stockhead.
“We’re just not finding any new ones. The only way to really grow production if you’re a copper producer is acquire.”
Scroll down for a list of the best and worst performing ASX copper stocks.
Altona has found itself the target of a $93 million takeover bid by Canada’s Copper Mountain Mining (TSX:CMMC).
The all-scrip offer, which works out to about 17c per share, is a 41.7 per cent premium to the closing price of Altona’s share price before the offer was announced.
Shareholders of both companies voted in favour of the takeover this week.
Altona’s assets include $30 million in cash, and a permitted development project and large landholding in Queensland.
“It wouldn’t surprise me at all if we see more of this,” Mr Cowden said.
“There’s certainly not much copper exposure left on the ASX. There are very few copper producers to invest in, which is good for those who are there.”
Copper is already a large market – with everything from phones to infrastructure requiring the red metal.
“The demand for copper over the last hundred years mimics world GDP,” Mr Cowden noted. “So it’s always steadily growing.”
And if the electric vehicle market takes off as predicted, copper demand will rise further.
Electric cars drive demand
Within 10 years total copper consumption in all types of electric vehicle batteries and infrastructure could account for 5 per cent of the global market.
Morgan Stanley expects electric cars to need 1.1 million tonnes of copper by 2025. That’s expected to grow to 1.7 million tonnes by 2027 according to the International Copper Association (ICA).
Today electric cars account for only about 185,000 tonnes. The global market for copper is now about 23.9 million tonnes and that is forecast to rise to 28 million tonnes by early next decade.
“Electrification of things is obviously really helpful for the copper market and probably will make it grow faster than normal, but really it’s just a huge and diverse market that has been growing for years and will continue to grow,” Mr Cowden said.
“The challenge is feeding that.”
In a recent base metals and gold note, financial advisor UBS says it prefers copper over nickel equities at the moment.
“Copper at $US3/lb is fair, and the long-term outlook is positive with no immediate short-term risks,” UBS said.
“This leads us to have a neutral to favourable outlook for copper equities.”
Forty two of the 85 stocks Stockhead follows has made gains in the past year. King River Copper (ASX:KRC) is the biggest gainer, up 3500 per cent.
Aeris Resources (ASX:AIS) is next in line with a 300 per cent gain, followed by Tando Resources (ASX:TNO), which floated in November last year and has jumped 275 per cent since its ASX debut.
Here’s a list of the best and worst performing ASX-listed copper stocks over the past 12 months. Scroll for full list: