An aerial view of Anglo American's Los Bronces copper mine at Los Andes Mountain range, near Santiago city, Chile in 2014.Ivan Alvarado/Reuters
BHP Group Ltd.’s BHP-N blockbuster proposal to buy Anglo American PLC NGLOY is igniting speculation that several Canadian copper miners could be snapped up as large-scale merger and acquisitions activity takes off once again.
Melbourne-based BHP on Thursday went public with a proposal to buy Anglo, which is based in London for US$39-billion. If the deal is successful, BHP would become the world’s biggest copper producer, bypassing Chile’s Codelco.
Since falling to US$3.25 a pound in the summer of 2022, the price of copper has rallied by 40 per cent to US$4.53 a pound, to trade only about 40 US cents below its all-time high.
Orest Wowkodaw, analyst with Scotia Capital Inc., said in a note to clients on Thursday that given the extreme challenge in building new copper mines and growing demand for metals used in low-carbon energy sources, the resumption of major M&A in the copper industry makes sense.
He identified Capstone Mining Corp. CS-T and HudBay Minerals Inc. HBM-T as his top acquisition targets.
Freeport-McMoRan Inc. FCX-N, Ivanhoe Mines Ltd. IVN-T and Lundin Mining Corp. LUN-T, he said, are also potential targets, but less attractive owing to their elevated valuations.
Mr. Wowkodaw is even less bullish on the prospects of Teck Resources Ltd. TECK-B-T getting acquired, pointing out that although the Vancouver-based miner has very attractive copper assets, Canadian regulatory concerns mean there is likely to be less interest from potential buyers in the near term.
Teck is currently working to close a major M&A deal that has not yet been approved by Canada’s federal government. Late last year, Teck agreed to sell its metallurgical coal business for US$8.9-billion to Glencore PLC GLNCY of Switzerland, Japan’s Nippon Steel Corp. NPSCY and South Korea’s POSCO PKX-N.
While the transactions with POSCO and Nippon have already closed, the 77 per cent of the business Teck wants to sell to Glencore is still being scrutinized under the Investment Canada Act for national security and net benefit.
Teck on Thursday reaffirmed that it expects the Glencore deal to close no later than the third quarter of this year. During a conference call with analysts following the release of Teck’s first-quarter earnings, chief executive Jonathan Price said that BHP’s move on Anglo showcases the attractiveness of copper, but “doesn’t change anything” in terms of his company’s own strategy.
Teck is in the midst of ramping up its newly-constructed QB2 mine. Located high in the mountains of northern Chile, the project has been rocked by massive expense overruns. The capital cost is estimated to come in at roughly US$8.7-billion, or about two-thirds higher than initially estimated. QB2 is currently losing money, but Mr. Price said that as production continues to increase, the situation should improve.
Shares in Teck rose by 8.7 per cent on the Toronto Stock Exchange on Thursday to close at $67.65 apiece, the best-performing stock in the TSX Capped Materials Index.
Shares in Capstone, Hudbay, Ivanhoe and Lundin Mining Corp. rose by 6.4 per cent, 4.7 per cent, 4.9 per cent and 1.8 per cent, respectively.
The price of copper has rallied in recent months in part because of fears over potential supply issues. Late last year, Cobre Panama, one of the world’s biggest copper mines, was shut down by Panama after the country’s Supreme Court said that Canadian miner First Quantum Minerals Ltd.’s contract was unconstitutional. Cobre Panama accounted for about 1.5 per cent of global output.
It has been almost two decades since the last major round of M&A in the Canadian industrial metals sector. During the mid-2000s, Rio Tinto Ltd. paid US$38-billion for Quebec’s Alcan Inc., Vale SA bought Inco Ltd. for $19.4-billion and Falconbridge Ltd. was acquired by Xstrata PLC for US$18-billion.