Junior copper explorers are looking mighty hot as the big guys hunt for deals
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Special Report: The copper market is heating up and recent news that the $1.1 billion Sandfire Resources would snap up junior explorer MOD Resources at a nice 45 per cent premium proves the majors are cashed up and looking to do deals.
Deals like this, which is priced at $167m, are a win-win for both parties.
Sandfire (ASX:SFR) boss Karl Simich said the acquisition of MOD (ASX:MOD) added the near-term T3 copper project in Botswana to Sandfire’s global development pipeline, while also adding a significant landholding on the highly prospective and underexplored Kalahari copper belt.
Meanwhile, MOD managing director Julian Hanna said MOD viewed the deal as an “opportunity to maximise value” from the T3 project, which could be funded from Sandfire’s balance sheet and cash flows.
“At the same time, it will provide MOD shareholders with exposure to Sandfire’s substantial high-grade copper production in Australia and the outstanding potential of MOD’s extensive licence holdings through an accelerated exploration program,” Hanna noted.
Good deals like this one often spur the smaller company’s share price higher, as well as allow shareholders to realise a significant premium.
In this case MOD’s share price has jumped over 40 per cent since the deal was announced.
With the momentum in the market right now, juniors are seeing deals that auger well for the ASX’s tiny pool of emerging copper contenders.
Let’s start with joint venture deals. Take the $3.2 billion OZ Minerals (ASX:OZL), which just loves backing juniors with good projects.
For example, OZ Minerals is sinking $36m into a copper joint venture with Cassini Resources (ASX:CZI) that provides it with a clear pathway to a decision to mine its West Musgrave project in Western Australia and potential cashflow.
In May, OZ Minerals also agreed to “loan carry” Minotaur Exploration (ASX:MEP) through to production at the Jericho copper project.
And before that, the heavyweight swallowed up Avanco Resources in a $444m takeover play.
Another deal option is a major joining a smaller company’s share register.
In the case of small cap base and precious metals explorer White Rock Minerals (ASX:WRM), Sandfire has positioned itself as a substantial shareholder with a 12.7 per cent stake.
This deal injected an initial $2.5m into White Rock and the relationship has since evolved into a joint venture on White Rock’s flagship Red Mountain project – with more cash being sunk into the project by Sandfire.
Another option, like with the Sandfire/MOD deal, is a takeover.
Small cap copper explorer Altona Mining was last year acquired by Canada’s Copper Mountain Mining (TSX:CMMC), which stumped up a 41.7 per cent premium for Altona.
According to those in the industry, the much larger players are starting to realise the pipeline of copper projects is “few and far between”.
S&P Global Market Intelligence flagged the emerging shortage of quality copper projects in May, saying although the level of funding being spent on copper exploration over the past decade has increased significantly, it’s not turning up any new major discoveries.
S&P’s research suggests that an asset takes about 20 years to advance from discovery to production.
So those ASX-listed explorers that are just now putting their foot on prospective copper ground or defining up resources will be well placed to capitalise on the expected shortfall.
One small cap that now has a scoping study behind it and has the largest undeveloped copper resource in Western Australia is Caravel Minerals (ASX:CVV).
A scoping study is the first proper look at whether a resource can be mined economically.
The study was based on Caravel’s very large porphyry copper deposit in Western Australia.
The world’s largest, most profitable copper mines are open pit porphyry deposits and enable a project to be developed as a low to mid‐cost operator over a very long potential mine life.
With copper grades declining around the world and new major discoveries proving elusive, experts forecast the price could be much higher — which would enhance the Caravel project even further.
On top of that, demand is set to increase quite substantially given the rapid rate at which the world is pushing for more electric vehicles and associated infrastructure.
Plus, there is a building boom going on right now on the east coast of Australia, and China is still urbanising.
And there is still a lot more potential for significant resource increases, according to Caravel.
The project has seen only limited drilling and numerous sections of the resource remain open along strike, at depth and downhole.
Caravel ticks all the boxes for a major with deep pockets looking to shore up copper resources in the near future.