Minted Indonesian family sees red metal upside in Rex's Hillside

Copper’s long-term investment thematic has spurred a $393m bid for SA copper junior Rex Minerals
The bid comes from a subsidiary of Salim Group, Indonesia’s richest family conglomerate
Rex Minerals boasts the Hillside project – Australia’s biggest ‘shovel-ready’ copper asset

Copper prices might be seeing some renewed volatility but that hasn’t stopped mining companies, optimistic about the metals’ long-term prospects, from carrying out mega deals and investments in the space.

That long-term investment thematic spurred a showstopper $393m bid by Indonesia’s richest family for South Australian copper play Rex Minerals (ASX:RXM), owner of Australia’s largest shovel-ready copper asset, the Hillside copper-gold project – once rated by Goldman Sachs as one of the top 50 undeveloped copper assets worldwide and the only held by an ASX junior.

Many analysts believe a perfect storm could be brewing for copper.

Copper can be bent and shaped into wires and this is one of the reasons – along with high conductivity, durability and other properties – that makes it ideal for electrical uses such as clean energy technologies, EVs, and various applications that connect energy storage and generation to the grid.

But with diminishing ore grades, slower-than-expected production growth from expansions and new copper projects, and growing political risk in high producing jurisdictions like Panama, Chile and Peru, the pressure to find and develop earlier stage copper projects has become more urgent than ever.

A 10-bagger of sorts

RXM jumped ~66% in early-morning trade on Monday to a decade long high of 45 cents following news it entered into a scheme-implementation deal with the company’s largest shareholder MACH Metals Australia (a subsidiary of the Salim family group) to acquire all of the shares it does not already own for cash consideration of $0.47 per share.

That’s a 176% premium to the offer price for RXM’s most recent entitlement offer in January this year (17c), and a 1400% increase or 15-fold jump from the company’s share price woes in 2020 (3c), delivering shareholders with a potential all cash payout at a 10-year high.

MACH increased its holding in the company to 15.8% in February after underwriting an entitlement offer and while the takeover remains to be approved by the Foreign Investment Review Board and Rex shareholders, it provides a clearer development pathway for the fully permitted asset which – based off a 2022 study – boasts a NPV of $847m (post tax).

Speaking with Stockhead yesterday morning, RXM CEO and managing director Richard Lauffman said inking that 47c bid from MACH Metals Australia – a private thermal coal operator – was a fantastic outcome.

“We were down to around 3.5 to 4 cents during COVID and the board, a few friends and I loaned the company money to keep it going when it was impossible to raise money,” he recalled.

“It was dim, but we fought our way back and got the funds we needed to get all our approvals sorted and begin some pre-development work.

“So, coming from that base, it’s a 10-bagger outcome for our shareholders.”

Moves follows 18-month global partnering process

The deal, which isn’t subject to any financing or due diligence conditions, follows a competitive global-partnering process, which lasted about 9 to 18 months.

During that time, Lauffman said the company spoke to a lot of companies in and outside Australia. MACH is a private entity, its purchase from Rio Tinto (ASX:RIO) of the Mount Pleasant thermal coal mine near Muswellbrook a few years ago, paying off in the form of a $273m dividend to the Salims last year, an example of the freedom it has to make investment decisions outside the pressures of public markets.

Lauffman said the risk averse nature of the large cap listed mining sector kept on the sidelines players like BHP (ASX:BHP) – which bought producer OZ Minerals last year for $9.6bn to create a potential 500,000tpa copper province in South Australia’s Gawler Craton.

With capex numbers blowing out at new projects across the world but large caps sitting on healthy scrip, development is less attractive as a growth lever than M&A, a case in point BHP’s ultimately failed attempt to become the world’s biggest copper miner via a merger with Anglo American.

MACH on the other hand demonstrated a clear conviction to acquire the project and diversify from thermal coal by using the development stage asset to grab a foothold in the Australian copper market.

Led by billionaire tycoon Anthony Salim, the Salim Group conglomerate is best known as the producer of Indomie instant noodles, the staple food of lazy and hungover college students across the globe. But Salim also boasts a multi-billion dollar stake in Indonesian copper miner Amman Minerals, a US$3bn IPO last year which owns and operates the ~150,000tpa copper, ~500,000ozpa gold Batu Hijau mine.

“They have a very clear strategy, clear objectives and put a clear proposal on the table, and that made it very easy to do business with them,” Lauffman said.

“A lot companies had a look under the bush at Rex and had the opportunity to put their foot forward, even when the copper price was significantly lower.

“But I think the fear of a development asset was enough to let them sit on the sidelines and see what happens, the case of first to be second.

“The reality is that the big end of town are mostly risk managers nowadays – they would sooner pay three or four billion down the track when you’re operational than take the risk at the moment.

“But with MACH, we’ve managed to put together a really sensible deal for both parties and this way, we’re not sitting in the market with an arbitrage to a listed company going up and down.”

South Australia – a standout copper province

Hillside boasts a resource of 1.9Mt of copper and 1.5Moz of gold, only 150km from Adelaide on the Yorke Peninsula in South Australia, one of the most active copper provinces in Australia.

According to Lauffman, the state is also one of the best investments globally for resource development with advantages over places like North America and South America, where potentially larger copper deposits can be found.

“If I was going to spend a copper dollar on exploration today it would be in South Australia,” he said.

“North America has a handful of states you can do business in and they’re hard – we’ve seen the turmoil in South America continue to grow and some of the challenges there geographically are much larger with a lot of discoveries at 4000m and not much water around.

“In a world where risk seems to be the focus of most people, parts of Australia start to look pretty enticing, and SA and WA are standouts for sure.”

Set out in the current mining plan, the Stage One mine will produce about 42,000tpa copper and 30,000ozpa gold over 11 years with a payback period of just 4.3 years.