Copper Development Projects Are In Play As BHP And Lundin Mining Make Takeover Offer For Filo

BHP clearly sees the importance of copper supply and is aggressively working to increase their copper assets. First they took a run at Anglo coveting their copper mines, which failed so they teamed up with Lundin Mining to make a takeover offer for Filo Corp.

Making a takeover offer wasn’t overly surprising because it is clear that copper demand is going to overwhelm supply. The surprising part was the price BHP and Lundin are offering for Filo as it is one of the highest prices ever for a copper development project.

BHP is not the only major mining company that is eager to add copper projects to their mix of assets, practically every major is in the game. They are looking for copper mines, copper projects in development and even involved with copper exploration.

They have a very good understanding of the powerful demand now and how it will grow into the future. Plus, they have their fingers on the pulse of current production and the pipeline of new mines being built, plus what is coming with projects in development and discoveries.

When they add it all up, there just isn’t nearly enough copper projects in the pipeline to meet short and long-term demand. I totally agree with the arguments that the supply chain is in such bad shape compared to demand that a supply deficit is around the corner and the potential for supply crunches are a real possibility.

Immediately upon hearing about the Filo Corp takeover offer, McEwen Mining came to mind. They own nearly 50% of the shares in McEwen Copper, which owns 100% of the Los Azules copper development project in Argentina.

Los Azules is one the top 10 undeveloped copper projects worldwide, it has an estimated mine life in the decades. Due to its low cost of production, it would be a free cash flow machine of a copper mine. It has all the attributes of what a major mining company wants and needs. 

The majors want copper projects that have very long mine lives, that can produce a lot of copper annually and do it profitably. The cost of production in the Los Azules PEA, shows that it makes money at prices well below the current price of copper, higher prices of copper are icing on the cake.

Even if every copper project in the development phases came into production, it still wouldn’t be enough to meet the demand that is present now or many years into the future. But, that won’t happen because some of the big ones are struggling to move forward due to permitting issues.

BHP and Lundin are obviously comfortable with the prospects for permitting mines in Argentina. Javier Milei is a breath of fresh air as a leader of an important copper mining country. 

He is very open to the economic importance of copper mining in Argentina and I think he will make Argentina a very mining-friendly jurisdiction, possibly one of the best in all of South America. Los Azules also benefits from being in the most mining-friendly province in all of Argentina.

When you look at project to project for Filo’s copper project and Los Azules, a strong argument can be made that Los Azules is a better project. Using the comparables of the valuation put on Filo’s copper project and Los Azules, McEwen Mining’s interest in Los Azules looks significantly undervalued.

Another junior with an impressive copper development project is Alta Copper (sponsor, see disclosure below) that has the grade and size that make it something a major would want to develop.

That is far from a stretch as Fortescue already owns 31% of the shares in Alta Copper. Majors like Fortescue don’t buy big positions in juniors like Alta Copper for the potential gains in the stock. They do this purely because they see the potential for the junior’s project to become a future mine.

Alta Copper’s Canariaco project is in Peru, which is another country in South America that is embracing the importance of mining for the economic well being of the country. 

They had gone through some political opposition by past governments but the current government is changing that in a big way. Southern Copper is majority owned by Grupo Mexico, they recently announced that their Tia Maria project is recommencing development to build the mine.

Not long after the announcement came out about Tia Maria moving forward to build the mine, the head of mining for the Peruvian government was interviewed. He talked about how important copper mining is to the country and how important Tia Maria is in particular.

In addition, while speaking about government efforts to see copper mines being given the green light, he mentioned two key projects. Both Tia Maria and Canariaco were at the top of his list.

When I first got into the mining business in the early 1990s, and for most of my career, the major mining companies didn’t work together with other majors. But, that has changed in the past decade. 

Part of the reason is that it can often make for synergistic relationships that make mines more profitable as part of a joint venture than going it alone. Another reason is that major mining company sized projects run in the billions to build and teaming up can make them more feasible.

Case in point is the offer for Filo with BHP and Lundin coming together to make the bid. I think more of these cooperative efforts will continue to happen.

Canariaco is certainly a project that Fortescue can develop on their own. To own it all, they would need to buy out the 69% of the shares they don’t own in Alta Copper. To do that, they would have to make an attractive offer that gets a majority of the shareholders to vote in favour while Fortescue would not be allowed to vote their shares.

I think there could be other ways that could see Canariaco advance toward being a future mine. One possible outcome is that Alta Copper and Fortescue jointly develop it or another major comes in as a partner.

In Closing

BHP and Lundin teaming up is a clear sign that copper development projects are highly attractive to the majors that want more copper assets in their portfolios. 

Both Los Azules and Canariaco have the size and robust economics that fit the bill for what majors are looking for and buying.

All the best,

Allan Barry Laboucan

Disclosure

Alta Copper is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers of the reports as it makes content creation possible for no charge to readers. Allan Barry Laboucan is a shareholder of Alta Copper.

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