In the world of mining, copper is by far the most sought-after industrial metal.
China is short of it, the mines that form the backbone of current supply are aging, and the few new deposits are positioned in far flung locations such as Mongolia. “Everybody likes copper because there is not much of it,” said Menno Sanderse, a mining analyst at Morgan Stanley.
And yet, mining companies that have long coveted copper assets have been thwarted by an industry tightly controlled by a handful of players. Until now. The news that producers Antofagasta Plc and Teck Resources Ltd. have looked at a potential deal suggests companies may be trying to find ways to break the impasse. Both have said they aren’t currently in merger talks.
“The opportunities for consolidation are real,” Paul Espie, managing director of mining-focused private equity group Pacific Road Capital, which has $800 million in assets, said in an interview Tuesday in Santiago. “It’s an interesting time because valuations are low. We are looking at the consolidation situation in Chile right now.”
The scarcity of new copper deposits, falling grades at mines in Chile, the U.S., Australia and Indonesia, and runaway costs to develop projects combine to make it more attractive to buy a rival than build a new mine.
The first catalyst sparking hopes of wider consolidation has been a 17 percent drop in prices over the past two years, which has made vulnerable producers more affordable. Still, there’s differing opinions about how a price recovery would help buyers snap up target companies.
“I have not seen this divergence between bulls and bears in a decade,” Paul Robinson, a director at London-based consultants CRU Group, said on March 30.
The potential for M&A activity was a talking point at the annual industry gathering this week in Chile, the largest in the copper sector, and attended by more than 3,000 executives, traders and bankers.
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