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Number Cruncher

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Copper plate (Getty Images/iStockphoto)
Copper plate (Getty Images/iStockphoto)

Number Cruncher

Copper stocks – as seen through the eyes of the takeover artists Add to ...

Mr. Bowman is a portfolio manager at Wickham Investment Counsel Inc. michael@wickhaminvestments.com

What are we looking for?

Shares in Canadian copper producer Inmet Mining surged more than 17 per cent last week following the company’s announcement that it had rejected a takeover bid from First Quantum Minerals.

My colleague Sean Pugliese and I thought we would take a look at other producers from around the world and evaluate their takeover potential.

Demand for copper is also seen as a reliable indicator of economic health because of the base metal’s widespread use in the economy.

The screen

We looked at the EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization). This is also known as the takeover multiple. It looks at the company from the eyes of a potential acquirer. A low number indicates the company is undervalued and could be a potential takeover candidate. We have sorted our companies based on this ratio, from low to high. It is interesting to note that prior to the First Quantum/Inmet announcement, Inmet’s EV/EBITDA was about 5.7.

Additional criteria in our table, EV/current reserves and EV/current reserves plus resources, are typically used to evaluate merger and acquisition candidates. They are ratios that measure how much an acquiring company will pay per tonne of metal. Current reserves are defined as proven and probable minerals that could be economically extracted and produced.

Current reserves plus resources are reserves plus those deposits that are hypothetical and/or speculative in nature.

The forward P/E ratio is based on analyst’s estimates.

What did we find?

Except for the extremely high price-earnings ratio, HudBay Minerals ranks very well in the other categories. Yamana Gold made the list because it produced 155,000 pounds of copper in 2011. It also seems Capstone Mining, a mid tier copper producer focused in the Americas, is worth a second look.

Copper prices should not be relied upon as the only indicator of economic health. Still, looking at base metal companies in a way their competitors view them just might point you to the next takeover target.


Copper producers as seen through the eyes of potential acquirers

Name Ticker Mkt Cap ($-mil) EV/EBITDA
HudBay Minerals Inc HBM-T 1,666 2.59
KGHM Polska Miedz Sa KGH Poland 11,472 2.72
Oz Minerals Ltd OZL Australia 2,329 3.8
Capstone Mining Corp CS-T 860 4.18
Anglo American Plc AAL London 38,937 4.5
Rio Tinto Plc RIO London 97,439 5.45
Boliden Ab BOL SS 4,872 5.59
Freeport-McMoRan Copper FCX-N 36,796 5.85
Teck Resources Ltd-Cls B TCK.B-T 19,985 5.86
Grupo Mexico Sab De Cv-Ser B GMEXICOB Mexico 25,737 6.01

Wickham Investment Counsel Inc., Bloomberg


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