The stock of one of Canada’s largest pure play copper companies has been on a tear as investors bet its assets across four continents have come into the sights of rich rivals desperate to replenish reserves.
By the close on Friday, when profit taking shaved 4 per cent from its valuation, First Quantum Mineral shares had aggregate gains of 18 per cent over 11 trading sessions after reports out of London that the Toronto-based company may be in the sights of several mining giants.
There are rumours that a number of global mining majors may be interested in looking at First Quantum’s assets. Among those speculated to be in this category are such giants as Glencore and Xstrata – which are currently trying to merge – BHP Billiton, Rio Tinto and Anglo American.
It’s not the first time such rumours have appeared, and there’s little evidence they are anything more than talk but, bankers admit, any copper or diversified miner would have compelling reasons to buy First Quantum in today’s tight copper market.
“For any mining company that wants to buy a long-term copper asset, it’s much cheaper to buy it on the equity market than on the London Metal Exchange. So that’s why I would think it likely,” said Raymond Goldie, an analyst with Salman Partners in Toronto who has a $28 price target on First Quantum shares, now trading around $21 per share.
“On the other hand, we’ve been here a few times before. Every time First Quantum shares get down, we get this kind of rumour.”
First Quantum did not return calls for comment.
Copper has been one of the most in-demand commodities of the past decade, driven by ravenous and seemingly limitless demand from China, which is using it to build roads, power grids and entire cities in a massive urbanization drive.
Prices for copper, an excellent conductor of heat and electricity used in everything from electrical wires to roofing and plumbing and industrial machinery, are at some $3.60 (U.S.) a pound, off all time highs of near $4.60 per pound, but still more than six times what they were nearly a decade ago.
First Quantum is a mid-tier producer, with copper output of some 265,000 tonnes per year from its flagship Kansanshi mine in Zambia and another in Mauritania called Guelb Moghrein.
The draw to First Quantum is not so much about what it’s producing as it is about projects in Zambia, Peru and Finland that promise to thrust it into the major leagues, with annual production of more than a million tonnes of copper per year.
New capacity will come as First Quantum boosts production at Kansanshi and brings a new mine on in Zambia. The so-called Trident project is targeting commercial production in 2014 and will eventually add 300,000 tonnes of copper to annual output.
Faced with a deficit of projects to develop, pressure is building on global miners to bring new copper output on line. For many, the only avenue open to them for growth is to buy or merge with their peers, and they have plenty of cash flow from the copper boom to help make that happen.
In December, Polish copper producer KGHM Polska Miedz SA announced plans to buy Toronto-listed Quadra FNX mining for $3-billion in cash. Also last year, Canada’s Barrick Gold Corp., the world’s largest gold miner, took what might prove a prescient step with a $7.3-billion bid for Equinox Minerals.
“In terms of a First Quantum takeover, I would've thought that if the Glencore/Xstrata merger was successful that the combined company's target could very well be First Quantum, as there may be some synergies with Glencore in Africa and Xstrata's presence in Peru could aid in the development of (the) Haquira (project),” said Shane Nagle, a research analyst with National Bank Financial in Toronto.
“Recently there's been speculation of BHP and Rio Tinto being interested as well,” he said via e-mail from a mine visit in Peru.