M&A activity is heating up in the mining sector, especially involving companies with a significant copper resource. Hudbay Minerals Inc announced recently that it will acquire operationally-challenged Copper Mountain Mining Corporation for US$439 million in stock.
And in March, Lundin Mining Corporation (TSX:LUN) revealed a deal to acquire 51% of the Caserones copper mine in Chile for US$950 million.
Consulting firm McKinsey & Co wrote that the global clean energy transition is expected to boost annual copper demand to 36.6 million tonnes by 2031, with supply forecast to be around 30.1 million tonnes, creating a 6.5 million tonne shortfall at the start of the next decade, The Wall Street Journal reported.
Copper, after all, is used in electric vehicles, solar panels and other green technologies, and Goldman Sachs (NYSE:GS) analyst Aditi Rai estimates that ‘green’ uses of copper are expected to increase from 4% of copper consumption in 2020 to 17% by 2030.
All of which points to further acquisitions by larger companies in the copper mining space, as miners will need to boost production significantly to meet future demand.
That said, here are three sub $5 billion market cap copper companies that look like attractive acquisition candidates:
Capstone Copper Corp
Capstone Copper is a mid-tier copper producer focused on the Americas, with operations in Chile, the US, and Mexico.
The company’s Pinto Valley mine in Arizona, its Cozamin Mine in Mexico, and Mantos Blancos mine in Chile are currently in production, and Capstone owns 70% of the producing Mantoverde mine and 100% of the Santo Domingo development project, also in Chile.
In 2022, Capstone produced 158,800 tonnes of copper from its combined operations, at cash costs of US$2.63 per pound, allowing the company to generate a profit of $136.1 million, or $0.20 per share, for the year.
For 2023, Capstone is forecasting total copper production of 170,000 to 190,000 tonnes at US$2.50 to $2.70 per pound, and the company estimates it has a combined Measured & Indicated copper resource of more than 11 million tonnes.
The $4 billion plus market cap miner is also holding $101.1 million in cash and short-term investments as of March 31, 2023.
Capstone is the most attractive candidate on the list due to the number producing assets and probability of improving margins and cash flow within its current operations. Its market cap is also small enough that it could be absorbed by an intermediate producer.
Filo Mining Corp (OTCQX:FLMMF, TSX-V:FIL)
Filo Mining is advancing its 100% owned Filo del Sol copper-gold-silver deposit in Argentina on the Chilean border. Filo also has the backing of the billionaire Lundin mining family, which owns about 32% of the company.
Filo del Sol has an estimated Indicated resource of 3.2 billion pounds of copper, 4.6 million ounces of gold, and 160.4 million silver ounces, along with an Inferred resource of 1.3 billion pounds of copper, 2.1 million gold ounces, and 50.3 million ounces of silver.
The company’s recent drill results included 983.9 metres of 0.89% copper equivalent, and Filo Mining believes the deposit is associated with a large porphyry copper-gold system.
As of March 31, 2023, the company had cash and cash equivalents of C$58.7 million.
Filo Mining, while still in the development stage, has a resource large enough to attract the attention of a large-cap miner, especially one that has existing operations in Argentina and/or Chile. Its property and district appear to have substantial exploration upside potential but would require the extensive capital of a major to realize its potential.
Taseko Mines Limited
Taseko operates and owns 87.5% of the Gibraltar Mine, the second largest open-pit copper mine in Canada, as well as the Yellowhead copper, New Prosperity gold-copper, and Aley niobium development projects, all of which are located in British Columbia.
The company also owns the near-term producing Florence Copper project in Arizona.
Taseko estimated that Gibraltar will produce about 135 million pounds of copper over a 16 year mine life, at average cash costs of US$1.80 per pound.
The Florence project, meanwhile, is forecast to produce 85 million pounds of copper per year on average, at average cash costs of US$1.10 per pound, over an estimated 21 year mine life.
The Yellowhead project has estimated mineral reserves of 4.4 billion pounds of recoverable copper, 440,000 ounces of gold, and 19 million ounces of silver.
In 2022, Taseko Mines generated revenue of $391.6 million while realizing adjusted net income of $1.7 million.
The company held $102 million in cash as of March 31, 2023.
Sub $600 million market cap Taseko is appealing because all of its properties are in either Canada or the US, assets which have historically commanded a market premium. Its development-stage projects, especially the near-term producing Florence property, could see Taseko have the biggest upside.
Contact Sean at sean@proactiveinvestors.com