‘Renewed M&A push’: Capital-starved small caps are prime takeover targets

Miner and explorers with sub-$500m market caps are battling through “one of the toughest markets ever experienced” – making them prime takeover targets for bigger players.

The pool of capital for most small cap resources players has dwindled, says Liam Twigger, principal at corporate advisory firm PCF Capital.

“[A] two speed market is currently split between those with plus $500m market caps – that are on the radar of the passive funds and exchange traded funds (ETFs) – and those that aren’t,” Twigger told delegates at the Paydirt 2019 Africa Downunder conference in Perth.

“For those on the wrong side of $500m, it is probably one of the toughest markets we have ever experienced.

“It is like being in a rain shadow with all the rain falling on one side of the mountain and very little on the other.”

‘Bigger is better’

This two-speed market is delivering excellent acquisition opportunities for the “haves”.

This will see a renewed push into M&A over the next 12 months, despite fragile and fickle equity markets, Twigger says.

“These players are certainly in the search for more buying as they have entered the 2020 financial year against a backdrop of a global trade war and a two-speed market,” he says.

Recent acquisitions, like Resolute Mining’s (ASX:RSG) $US274m ($404m) bid for Toro Gold in July, and the current $167m takeover of copper play Mod Resources (ASX:MOD) by Sandfire Resources (ASX:SFR), will become a theme.

For small cap investors, this merger and acquisition activity presents opportunity.

MOD, for example, is currently up about 34 per cent since the Sandfire takeover announcement.

“In a market environment where there is little world-class greenfields success to report, growth-through-acquisition as miners look to buy their next generation of ounces or tonnes will likely continue to be the dominant theme,” Twigger says.

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