What we are looking for
A Canadian copper miner that could be a takeover target.
Metal prices are highly cyclical, and it’s a cycle closely watched by investment bankers, because closely following a rise in prices can be a wave of investment and M&A (mergers and acquisition) activity. The mining industry is famous for overpaying for assets at the peak of the cycle, leading to large writedowns in subsequent years. This is obviously bad for shareholders of the acquirer, but can be great for shareholders of the target.
As investors consider the ramifications of an energy transition, and what will be required to reach net zero, one of the metals attracting the most attention is copper, which has numerous “green” applications such as renewables, power grids, electric vehicles etc. The World Bureau of Metal Statistics forecasts global demand will outstrip supply by 160,000 tonnes next year and the shortage to increase to 200,000 tonnes by 2026. This should drive copper prices higher and lead to copper miners attracting a lot of attention as takeover targets.
The Financial Times reported recently that the “Canadian trio” of Teck Resources Ltd., First Quantum Minerals Ltd. FM-T and Capstone Copper Corp. are among the “main targets for predators.” Ottawa recently said it would only approve deals for Canadian miners “in the most exceptional of circumstances” and there is growing concern about China’s dominance in transition and critical minerals. But there is a chance a Canadian copper miner could be bought by another Canadian mining company, or one from a friendly country with a large mining sector, like the United Kingdom or Australia.
Last month, South Africa’s Gold Fields Ltd. bought Osisko Mining Inc. for a 55-per-cent premium above its average share price (over the preceding 20 days), and recent deals in other sectors have come with even higher price tags. In June, National Bank of Canada bought Canadian Western Bank at a 110-per-cent premium. Even in the absence of M&A activity, the mid- to long-term outlook for copper miners is strong, but the owners of one that is acquired (or even the subject of takeover rumours) can be handsomely rewarded even sooner.
More about London Stock Exchange Group
LSEG is one of the world’s leading providers of financial markets infrastructure and delivers financial data, analytics, news and index products to more than 40,000 customers in 190 countries. Since 1698, we have been helping customers seize opportunities and create value.
The Screen
• We start with a universe of every company in Canada that mined at least 20,000 tonnes of copper over the last fiscal year, according to LSEG data.
• Next, we use the StarMine M&A Target Model, a quantitative model that assesses the relative likelihood of a company being acquired in the next 12 months. It is composed of a fundamental component and a text component. The fundamental component considers things such as: credit quality, valuation, recent proxy fights, company size, asset values etc. In the text component, the model leverages artificial intelligence (AI) and performs natural language processing (NLP) on millions of Reuters News articles by applying a large language model (LLM). The output is a percentile ranking (1-100) of how likely a company is to be an acquisition target, relative to its peers, and we screen for companies scoring in the top 10 per cent (ie. a score above 90).
What we found
Of the “Canadian trio” mentioned by the Financial Times, only First Quantum scores above a 90 (Teck and Capstone score 87 and 81, respectively). Three smaller copper miners, however, do score above 90 (and the model finds smaller companies are more likely to be acquired). The smallest of the four, Imperial Metals Corp. III-T, scores the highest of the group. And unlike its larger peers, Imperial doesn’t face the geopolitical risks inherent in owning mines in other parts of the world. It operates primarily in Canada and its three big mine assets are all in British Columbia.
Hugh Smith, CFA, MBA, is Director, Analytics at London Stock Exchange Group.