Saving Dr.Copper

Copper

Last week, we discussed how $10k Cu was needed to mobilize new mine development. But BlackRock says $12k - BlackRock says $12,000 copper is needed to incentivize new mines.

According to Olivia Markham, co-manager of the BlackRock World Mining Fund, copper needs a 20% lift from current levels to mobilize funds towards large-scale projects essential to support the global megatrends of decarbonization and electrification.


“When I look at the price today, I think it’s well below the pricing levels we need to incentivize new greenfield production. Structurally, we need more copper units, and currently I don’t see those big blocks of new supply coming through,” Markham said in an interview last week.

The soaring costs of new project buildouts equate to roughly $30,000 for each ton of production capacity. For a mine producing 300,000 tons a year, that works out to a project CapEx of $9 billion. Miners would need $12,000 copper to make a 15% post-tax return on future investments, Markham said.

But the real story on the copper front is mining behemoth BHP taking a run at rival Anglo American. Consolidation in the sector is morphing into an intensifying trend in an era where the preference is to buy rivals rather than develop new projects.

M&A Amongst the Bigs Continues...

This takeover salvo, which could trigger further consolidation in the sector, has generated myriad headlines, all dropping within hours of one another.

BHP bids $39 billion for Anglo American as miners covet copper


The deal, if successful, would see the creation of a true colossus—the world's biggest copper miner driving roughly 10 percent of global output. BHP's offer, which represents a 31% premium over Anglo's closing price the session prior, is designed to capture producing mines in Chile, South Africa, Brazil and Australia (the deal would include a spin-out of Anglo's iron ore and platinum assets in South Africa where BHP is not active).

This deal comes as the mining giant appears primed to strut its dealmaking prowess, after years of holding back.

Mining's latest move to consolidate is driven by a scramble for copper and other metals central to the world's clean energy shift, and could have major repercussions for South Africa, which has seen the platinum it mines fall out of favour.


Ben Cleary, portfolio manager at Tribeca Investment Partners (which holds shares in both companies): "Anglo is obviously very much in play now and there's probably room for others to interlope. This is going to set the whole sector on fire."

But it would appear that Anglo isn't in the mood to be wooed, calling BHP's US$39 billion offer "opportunistic" - Anglo Rejects BHP Takeover Proposal as Significantly Undervalued.

Last Friday, Anglo said its board unanimously rejected BHP's "unsolicited" and "highly conditional" bid, stating that the proposal "fails to value" the company's prospects.

Anglo Chairman Stuart Chambers: “Anglo American is well positioned to create significant value from its portfolio of high quality assets that are well aligned with the energy transition and other major demand trends" adding, “Anglo American has defined clear strategic priorities, of operational excellence, portfolio, and growth, to deliver full value potential and is entirely focused on that delivery."

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown: “The proposed deal would hugely reshape the business, and the Anglo board has suggested the current bid isn’t reflective of the opportunity. There’s every chance BHP will come back to the table.”


A series of missteps over the past two years have cut Anglo's valuation in half, rendering it vulnerable to the appetites of resource-hungry entities like BHP - Anglo's Stumbles Have Made It Prey for Mining's Biggest Predator.

BHP’s proposal to break up Anglo and cherry pick its best assets marks a humbling moment for the mining house founded by the storied Oppenheimer dynasty and owner of the iconic De Beers diamond business. While analysts broadly expect BHP will need to sweeten its offer — which valued Anglo at about $39 billion — the move is raising existential questions about the future of the company and whether it can continue in its current form.

It's not surprising that, in light of claims that $39B is lowball, BHP is considering improving its offer after Anglo rejected the initial volley, a source familiar with the matter told Reuters: BHP considering improved proposal for Anglo American after bid rejected, source says.

BHP is in discussions on a revised bid for Anglo American to be made in coming weeks, the source said. The deliberations are ongoing and the group has not yet made a decision on the size and structure of the new proposal, the source added.

BHP won't comment on what it called "rumor and speculation," but it has until May 22 to come back with a revised (formal) offer if it's intent on bagging this quarry.

According to LSEG data, if successful, the deal would rank as the largest takeover of 2024 and among the top 10 deals ever in the mining arena.


This final Reuters piece offers two important takeaways: BHP's Anglo buyout makes business sense if the price is right.

In effect, BHP's bid is largely seen as a massive vote of confidence in the future of copper, which is essential to the energy transition given its properties as a conductor and its resistance to corrosion.
The bid may also be a tacit admission on BHP's part that buying copper assets is far easier than trying to find them and develop new mines.
Codelco Output Falls

Amplifying concerns over on the supply side of the curve, Santiago-headquartered Chilean state-owned miner Codelco, the world's second-largest producer according to this list, reported a decline in quarterly output due to lower-quality ore at its aging Chilean mines - Codelco Output Keeps Falling, Underscoring Copper Struggles.

Its production of 295,000 metric tons, down 9.6% from last year's quarter, comes at a time when the metals demand continues to ramp up.


The company is targeting a slight increase in 2024 after multiple operational setbacks (cost overruns at its development projects have adversely impacted the former number-one producer).

Though the company is getting some relief via lower operating costs, "Codelco is enduring another setback as one of its mines continues a gradual ramp-up after a fatal accident in March at a time when its Chuquicamata underground operation is closed for maintenance and a rock collapse last year hinders output at the giant El Teniente mine. That may make for an uphill battle to achieve annual guidance of 1.33 million tons to 1.39 million tons.