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Copper Rush? 2023 M&A Coming in Hot After Busy 2022

M&A activity in the mining sector remained strong last year overall, but copper deals took the top spot by value at US$14.24 billion, outpacing gold as all eyes turned to the red metal’s key role in the energy transition.

“In a reversal of a four-year trend, buyers spent more on base metals than on gold, with copper driving the difference — strong evidence of increased interest in the red metal due to its central role in the green energy transition and concern over dwindling reserves and supply,” a report from S&P Global Commodity Insights reads.

Looking at the resource sector as a whole, deal values came in at US$24.49 billion in 2022. Major miners were the biggest spenders — they spent more money on companies than projects, and when they did buy assets they favored producing properties. In fact, last year, the top three deals were major-major takeovers, with two focused on copper and one on gold.

Will copper continue to dominate mining industry M&A activity in 2023? Read on for a look at the biggest copper deals of 2022, the top transactions seen so far this year and what experts see coming moving forward.

What were the top copper deals in 2022?

Copper prices reached an all-time high in 2022, surpassing US$10,500 per metric ton (MT) on the London Metal Exchange.

“We have had two to three years of higher prices, so mining companies have the financial firepower to deploy that perhaps they didn’t have before,” Nick Pickens, copper research director at Wood Mackenzie, said.

There were a total of 18 copper deals in 2022, four more than the previous year, and as mentioned their total value came to US$14.24 billion, as per S&P Global Commodity Insights data.

The following three deals represent the most talked about acquisitions in 2022:

What are the top copper deals so far in 2023?

Copper M&A activity shows no signs of slowing down in 2023. Here’s a look at key transactions so far:

Will copper M&A activity continue in 2023?

Despite the wave of activity seen thus far, it’s possible that the current macro environment will influence miners’ willingness to engage in M&A in 2023, analysts at S&P Global Commodity Insights said. They mentioned inflationary pressures on wages and consumables, as well as labor shortages, as factors that may weigh on deal making.

“With expected slowness in global economic growth, demand for commodities may weaken, along with prices to some extent, which could cause miners to hold off on purchases in the short term,” the report reads.

That said, Wood Mackenzie’s Pickens said that when making investment decisions, copper companies should be using long-term prices as their key metric rather than focusing on short-term fluctuations.

“In past cycles we have seen that periods of lower copper prices have slowed down the pace of project commitments, mainly because companies were more concerned with preserving and balance sheets and profitability, rather than investing in growth,” Pickens said. “But looking ahead to the next two or three years, we don’t see copper prices dipping so low to the extent that it will damage free cashflow and prevent investment.”

Wood Mackenzie sees a significant number of projects in the pipeline that could potentially be developed over the next decade, and says that could equate to around 17 million MT per year of annual production.

“This compares with a shortfall of 5.5 million MT in the same period. However, permitting and sufficient return on capital investment are key bottlenecks,” Pickens explained. The research director added that the recent spate of M&A activity has been a result of companies buying growth options, rather than growing organically.

“This is the quickest route, and in some cases the best value option. But it doesn’t benefit the industry as a whole, because acquisitions don’t add new copper units to the market directly,” he said. “In fact, the concern is that consolidation actually constricts the project development pipeline and we end up with less investment into the ground as a result.”

Speaking about the current M&A spree in copper, Joe Mazumdar, editor of Exploration Insights, said that eventually companies will have to turn their eyes 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.”

For Mazumdar, companies are having a hard time developing new projects as governments change permitting and make it more difficult for projects to get going. “Some countries are also changing their mining tax policies, so some companies are holding back investments because of that,” he said.

All in all, the expert expects M&A in the copper sector to continue in 2023.

“These private placements to help exploration companies drill projects, as we’ve seen recently, should continue, because companies have money and they probably don’t have much of a pipeline,” he said.

What makes an attractive copper acquisition target?

Whether they’re looking to acquire a company or a single asset, copper majors have various considerations.

Mazumdar said one of the main things prospective buyers look at is the underlying resource.

“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,” he said.

This is also particularly true if the project is in a country where the company doesn’t have any operations.

“It would have to sometimes be a significant project for them to go through all the hurdles of getting into a new country,” he said. “If it’s just a project near their own project it doesn’t need to be that big, but infrastructure will be very important.”

But it all boils down to what the specific company is looking for when acquiring an asset or company.

“Do they want incremental production? Because the problem is that permitting new projects is difficult,” Mazumdar said. “So if you’ve already got a plant that’s winding down on the ore in the mine that you’re working on currently, then you would be looking at other companies’ projects nearby to see if they can work in your plant.”

Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.

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