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.
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.
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Copper producers as seen through the eyes of potential acquirers
|Name||Ticker||Mkt Cap ($-mil)||EV/EBITDA|
|HudBay Minerals Inc||HBM-T||1,666||2.59|
|KGHM Polska Miedz Sa||KGH Poland||11,472||2.72|
|Oz Minerals Ltd||OZL Australia||2,329||3.8|
|Capstone Mining Corp||CS-T||860||4.18|
|Anglo American Plc||AAL London||38,937||4.5|
|Rio Tinto Plc||RIO London||97,439||5.45|
|Boliden Ab||BOL SS||4,872||5.59|
|Teck Resources Ltd-Cls B||TCK.B-T||19,985||5.86|
|Grupo Mexico Sab De Cv-Ser B||GMEXICOB Mexico||25,737||6.01|
Wickham Investment Counsel Inc., Bloomberg
|Name||Ticker||Mkt Cap ($-mil)||EV/EBITDA||Fwd P/E||EV/Current Reserves||EV/Current Reserves and Resources|
|HudBay Minerals Inc||HBM-T||1,666||2.59||43.97||0.03||0.03|
|KGHM Polska Miedz Sa||KGH Poland||11,472||2.72||8.78||0.49||0.14|
|Oz Minerals Ltd||OZL Australia||2,329||3.8||15.33||0.16||0.09|
|Capstone Mining Corp||CS-T||860||4.18||11.38||0.05||0.03|
|Anglo American Plc||AAL London||38,937||4.5||10.12||0.04||0.02|
|Rio Tinto Plc||RIO London||97,439||5.45||8.66||0.18||0.07|
|Boliden Ab||BOL SS||4,872||5.59||9.07||3.02||3.02|
|Teck Resources Ltd-Cls B||TCK.B-T||19,985||5.86||11.63||0.1||0.03|
|Grupo Mexico Sab De Cv-Ser B||GMEXICOB Mexico||25,737||6.01||10.87||0.01||0.01|
|Vale Sa||VALE3 Brazil||93,168||6.06||6.55||0.11||0.11|
|BHP Billiton Ltd||BHP Australia||182,398||6.35||11.55||0.12||0.04|
|Barrick Gold Corp||ABX-T||34,272||6.47||6.76||0.14||0.1|
|Xstrata Plc||XTA London||49,820||6.47||11.52||0.26||0.08|
|Kazakhmys Plc||KAZ London||6,026||7.33||7.8||0.11||0.04|
|Southern Copper Corp||SCCO-Q||30,778||8.37||14.15||0.06||0.06|
|Lundin Mining Corp||LUN-T||2,989||8.38||9.79||0.08||0.05|
|Panaust Ltd||PNA Australia||2,154||8.9||9.46||0.23||0.13|
|First Quantum Minerals Ltd||FM-T||9,786||9.72||12.31||0.26||0.09|
|Newcrest Mining Ltd||NCM Australia||20,171||10.06||11.78||0.1||0.05|
|Industrias Penoles SAB De Cv||PENOLES Mexico||19,920||10.19||16.93||8.64||8.64|
|Yamana Gold Inc||YRI-T||14,131||12.13||13.06||0.34||0.24|