Annual global copper demand will nearly double from 25 million to roughly 50 million tons by 2035.
That’s the conclusion made by S&P Global Market Intelligence and it’s no surprise really, when you consider demand is being driven by the red metal’s central role in the green energy transition.
The current love for copper is also fuelling mergers and acquisitions (M&A) activity in the copper sector.
The recent S&P Global Commodity Insights Report on M&A in the metals and mining industry was based on a minimum deal value of $10 million and 1 million ounces of gold or 100,000 metric tons of base metal in acquired reserves and resources in 2022.
Source: S&P Global.
The report shows M&A activity was robust in 2022, despite the gloomy macroeconomic environment and as you can see from the above graphic, copper was a key contributor to activity.
Commodity Insights projects a deficit in both refined and concentrate copper markets by 2027.
This has sparked an increase in exploration projects.
Exploration budgets for copper soared to a nine-year peak in 2022, with most resources allocated towards exploration within existing mines, overshadowing the generative programs. This strategic shift, primarily driven by major corporations, aims to prolong the longevity and enhance the productivity of operational mines.
It makes sense then, that a majority of the 18 copper-focused transactions targeted assets in the reserve-development phase, highlighting a preference for long-term strategic acquisitions over immediate production augmentation.
Interestingly, the average transaction value for copper assets, which stood at $791.4 million, significantly outperformed that of gold, which was recorded at $328.3 million. This occurred despite copper and gold transactions being almost equally distributed among the top 20 deals, inclusive of both company and project-oriented transactions.
While the S&P Global graphic below highlights all M&A activity, of the 56 total deals, many of those were copper.
In this article
- Copper and the green revolution
- M&A activity puts copper in the spotlight
- Big deals
- Takeover targets?
- The copper outlook
Copper and the green revolution
The reason for all this interest in copper is its role in the energy transition.
According to Stock Doctor research equity analyst Daniel Ortisi, the use case for copper in renewable energy generation has driven record demand and prices for the metal.
“While traditionally known for its use in industrial production and manufacturing, copper has excellent electrical and thermal conductivity properties which make it an essential metal used in technologies such as windmills, solar panels, electric vehicles and charging infrastructure,” Ortisi told Proactive.
“As such, the future demand profile of copper is set to outpace not only historical growth rates, but also current mine supply forecasts with a market deficit a possibility as early as 2025.
"What really separates copper from other battery metals such as lithium is the sheer size of the market. Lithium may have stronger demand growth in the medium term, but the market size is only worth around $7 billion (vs copper at >$290 billion) and the use cases for lithium are specialised and niche, with a focus on battery technology, whereas copper demand is far broader.
“These market dynamics make copper a highly desirable metal for mining companies particularly global giants who are looking to reinvest billions of dollars in the sector. (Consider BHP’s comments about not entering lithium sector. Market is too small and risk around technologies could mean long term substitution of the metal.)"
The following video from Copper 360 outlines the role copper will play in the green revolution:
Essentially, copper has proven to be a vital player in the transition towards a sustainable, green economy due to its pivotal role in the construction of electric vehicles (EVs), wind turbines, solar panels, and power networks.
The burgeoning demand is largely fuelled by the growing popularity of EVs. As these vehicles require significantly more copper for their electric motors and batteries compared to traditional automobiles, the uptake in their use has directly amplified copper consumption.
Furthermore, as renewable energy technologies such as wind turbines and solar panels continue to gain traction, copper's role within these systems is set to become increasingly significant. The swift pace at which the world is embracing renewable energy sources suggests a sustained, robust demand for copper in the foreseeable future.
The International Energy Agency (IEA) predicts a potential surge of up to 40% in copper consumption by 2040. This projection is underpinned by various governments' commitment to achieving their Net Zero goals in an effort to curb greenhouse gas emissions. In response to this anticipated surge in demand, mining companies have initiated aggressive strategies to boost their production, often expanding their operations via strategic acquisitions and mergers.
M&A activity puts copper in the spotlight
Participants in the market are strategically pursuing acquisitions to bolster their copper portfolios, anticipating substantial future gains as supply tightens due to historical underinvestment on the supply side.
In fact, there are several reasons, for the growing interest in copper company acquisition.
“As we all know, mining is an extremely difficult industry to navigate, due to the capital and physical intensity associated with growth. Other barriers to growth include environmental, social and government intervention which is why mining projects can take 10-15 years to go from initial discovery to production, which is insufficient to meet growing demand (bullish case for prices),” Ortisi says.
“Given these challenges to growth, world leaders in copper such as BHP (ASX:BHP), Rio Tinto (ASX:RIO), Glencore (LON:GLEN) and Anglo American (LON:AAL) have turned to M&A to not only increase their exposure to the metal, but also satisfy growing investor demand – as the market has begun to place a premium valuation on companies with exposure to copper.
“This allows for a quasi ‘virtuous cycle’ in M&A whereby a company can acquire a copper asset, which will attract a premium valuation, and therefore allows for further M&A potential off the back of heightened investor sentiment.”
Ortisi cites Sandfire Resources Ltd as an example of the above scenario.
Sandfire used its scrip to issue shares and acquire the MATSA copper mine in Spain to replace its depleted DeGrussa mine – one of the only pure copper exposures listed on the ASX.
Sandfire currently trades at a premium EV/EBITDA multiple of ~7x, vs other base metal peers trading below 5x, which has allowed it to conduct a further capital raise earlier in the year to reduce debt, and potentially enter the race for the Khoemacau copper mine in Botswana which is reportedly fetching a price tag of around $2 billion.
It is worth noting that the EV/EBITDA multiple paid for Oz Minerals Ltd by BHP Group Ltd (LSE:BHP, ASX:BHP) was ~10x, showing a genuine premium for these projects.
Also worth noting is OZL had significant capital sunk for growth projects which was reflected in the price paid by BHP, as well as geographical synergies with its Olympic Dam mine.
Ortisi tells Proactive, “To further reemphasise the role M&A is playing in the copper market, 2022 saw global deal value for copper assets skyrocket 103% to $14 billion, whereas gold M&A fell 48% to $9.8 billion. Some of the largest deals were completed by the likes of BHP and Rio Tinto for the Oz Minerals and Turquoise Hill assets respectively. Clearly, there is a large appetite for these scarce assets and activity has not slowed down in 2023 with Glencore lobing a ~$22 billion offer for Canadian miner Teck Resources.”
The only issue is higher borrowing costs and ongoing disagreements over the proper valuation of copper assets. However this doesn’t seem enough to pose a challenge to the acceleration of copper-related M&A activity in 2023.
Big deals
In 2022, Rio Tinto paid US$3.3 billion for the remaining 49% stake in Turquoise Hill Resources, which highlighted its long-term copper outlook.
Through the deal, Rio Tinto gained a 66% stake in Oyu Tolgoi, the world’s largest known copper and gold deposit located in Mongolia.
The project is highly prospective but is also near direct rail and road access to the Chinese market, which gives Rio a competitive advantage.
China is the world’s largest refiner and consumer of copper.
The Rio deal was just one of several major M&A moves by big players.
The majors are looking at resource size.
According to the editor of Exploration Insights Joe Mazumdar prospective buyers are asking “How real is it? It has to be a sufficient size to get them the minimum value of copper to impact their balance sheet or their production profile — it's got to be meaningful.”
As per S&P Global Commodity Insights data, there were a total of 18 copper deals in 2022, four more than the previous year, with a total value of US$14.24 billion.
Mining giant BHP seized control of Australian copper producer OZ Minerals in a transaction valued at US$6.44 billion. This takeover earned BHP the highest rank in terms of deal value. OZ Minerals' asset portfolio includes the Carapateena copper mine and the West Musgrave nickel project.
In the third largest copper transaction by value, Swiss miner Glencore divested its CSA mine, located in New South Wales, Australia, to Metals Acquisition. This 2022 deal, valued at US$1.1 billion, involves an operation that yields about 40,000 metric tons of copper annually.
The trend of big deals is continuing in 2023.
Newmont, the world's largest gold miner, has set its sights on Newcrest Mining Ltd, with a final takeover bid of around US$19.2 billion announced in mid-May. If the acquisition comes through, it would be the largest-ever transaction in the gold sector. This deal will also considerably bolster Newmont's copper holdings. The company expects a combined annual copper production of roughly 350 million pounds from Australia and Canada once the acquisition is finalised.
Mining titan Glencore has been tenaciously pursuing Teck Resources, Canada's leading diversified miner, since early April.
Despite Teck's steadfast resistance, Glencore's unsolicited offer currently stands at a substantial US$23.2 billion. This move follows Teck's maiden concentrate production at Quebrada Blanca 2 in Chile - an asset poised to double the company's copper output. Glencore proposes a merger to form two distinct entities: GlenTeck, consolidating both companies' metals portfolio, and CoalCo, housing their coal assets.
As the first quarter of the year neared its end, Lundin Mining Ltd announced its intent to acquire a majority 51% stake in Chile's Caserones mine for US$950 million. This move aligns with Lundin Mining's strategic objective to increase its presence in what it views as a burgeoning top-tier copper mining district. To this end, the company has penned an agreement with JX Nippon Mining and Metals to acquire the majority stake in Lumina Copper, the operator of the mine. Lundin Mining already possesses projects in proximity to this asset.
Finally, Hudbay Minerals announced in April its plan to acquire Canadian firm Copper Mountain Mining Ltd in a deal estimated at US$439 million. Upon successful completion, the resulting entity will rank as Canada's third largest copper company. According to Hudbay, the amalgamated company aims to produce 150,000 metric tons of copper annually.
Australian companies are attracting interest and it isn’t just the larger miners.
Takeover targets?
Mazumdar believes that companies will turn their attention to assets that are yet to come on stream.
“M&A in production doesn’t take the risk of capital development, execution … you are going straight into production,” he said. “I think that will migrate, as it is in the gold sector, to people looking eventually at single-asset developers, which are trading at a big discount because of the financing obstacle that they have to surmount.”
That could bring into play some of Australia’s brightest small caps.
Helix Resources Ltd (ASX:HLX) is building its copper inventory at the Canbelego joint venture project with Aeris Resources Ltd (ASX:AIS) in NSW after an updated mineral resource estimate (MRE) boosted contained copper by 77%.
"A solid, realistic mineral resource estimate provides a platform from which to assess any development opportunities possibly with a partner – which enables us to maintain our focus on discovery activities,” Helix managing director Mike Rosenstreich said.
CuFe Ltd (ASX:CUF) is focused on high-grade premium product iron ore projects with a near-term outlook and also offers exposure to key strategic metals, specifically copper and lithium.
Earlier in the year, it welcomed a “significant” increase in copper reserves from its Orlando deposit at Tennant Creek Project.
Results from a successful 2022 drill program have contributed to an enhanced mineral resource estimate (MRE) update for the Orlando copper-gold deposit.
The new MRE revealed a tonnage increase of 30% and an increase of 16% in copper metal tonnes relative to the previous June 2022 estimate.
The latest quarterly report from Castillo Copper Ltd (ASX:CCZ, LSE:CCZ) highlighted significant progress at copper projects in New South Wales (NSW) and Queensland.
Entech Mining was recently appointed to conduct a pit optimisation and mine design study for the Big One Deposit, while plans have been approved to update and enhance the confidence in the 2017 inferred JORC Mineral Resource Estimate (MRE) for the Cangai Copper Mine in NSW.
The Big One sits within its NWQ project in Queensland’s Mt Isa copper belt, which has an Inferred JORC mineral resource estimate at 2.1 million tonnes at 1.1% copper for 21,886 tonnes of copper metal.
CCZ is in very close proximity to Rio Tinto, Anglo America, Teck and Glencore, which are all ramping activity.
Then there is Celsius Resources Ltd (ASX:CLA, AIM:CLA)'s MCB project, which recently gained a pivotal environmental compliance certificate (ECC) from the Philippines' Department of Environment and Natural Resources.
This crucial milestone clears the path for a mineral production sharing agreement (MPSA) with the Philippine National Government — a vital step in the precious and base metal project's progression.
The certificate solidifies its commitment to sustainable practices and conscious development in the Philippines.
Certainly, that focus on ESG holds weight in acquisition discussions with any company.
In January 2021, the MCB Project declared its maiden JORC resource estimate, and in December last year, the company updated the spoils to 338 million tonnes at 0.47% copper and 0.12 g/t gold, culminating in 1.6 million tons of contained copper and 1.3 million ounces of gold.
Assay results have also been strong, highlighted by:
- 51.3 metres at 0.93% copper and 0.06 g/t gold from 7.7 metres;
- 101.5 metres at 0.90% copper and 0.18 g/t gold from 9 metres; and
- 131.1 metres at 0.93% copper and 0.23 g/t gold from 11 metres.
“We continue to see higher-grade sections defined over a broad area now at shallow levels,” said executive director Peter Hume at the time.
“The earlier success we had in 2022 defining new shallow higher grade copper mineralisation is continuing into 2023.
In May this year, CLA entered into a non-binding term sheet and a binding subscription agreement which would see Canadian miner Silvercorp Metals Inc (TSX:SVM, AMEX:SVM) acquire all outstanding shares of Celsius at a fixed price of A$0.03 per share.
The consideration represents a 76% premium to the 20-day volume-weighted average price of Celsius shares on the ASX. The total value of the acquisition is estimated to be around A$56 million.
Its fundamentals, such as its Scoping Study results below, make CLA an attractive takeover target.
The copper outlook
The outlook for copper is rosy. The supply/demand equation will only increase prices and bring more potential buyers of attractive companies into the equation.
But growing M&A is only one part of the copper growth equation.
Ortisi says, “Outside of M&A, capex and exploration expenditures have risen in recent years to assist in organic growth of copper assets. However, the level of investment is far below historical levels seen in the 2010s.
“According to S&P Global, combined capex spend of the top 20 mining companies totalled ~$70 billion for 2022, compared to a peak of ~$110 billion in 2012. Industry issues such as inflation and labour shortages are further placing pressure on organic resource growth among all commodities, which is deterring organic investment and further favouring M&A in the capital allocation framework for global miners.
“This thematic of lower organic investment is a key point in the bullish case for resources over the medium term. Lack of significant supply growth in the backdrop of rising demand from decarbonisation should theoretically set the base case for benchmark prices higher.”
In other words, both M&A activity and organic growth will fuel copper’s fire as it becomes better known as a vital green energy metal.
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