Filo's Takeover Offer From BHP And Lundin Mining, Plus Milei Magic, Puts A Spotlight On McEwen Copper's Los Azules Project
The copper M&A dominoes are starting to fall as the price of copper is primed to go much higher.
Copper is on the minds of practically every major mining company. While plenty are talking about their desires to add copper projects to their portfolios, BHP and Lundin have pulled the trigger on taking over Filo Corp. When it comes to M&A, this will likely set off a series of copper dominoes to fall.
It is very exciting that this deal is in Argentina which has tremendous copper deposits that can help grow its role in copper mining. Filo del Sol and Josemaria deposits are part of the joint venture proposed by BHP and Lundin Mining. Those are very big copper deposits that will become impressive copper mines of the future.
Another fantastic deposit, Los Azules, is also in Argentina, and owned by McEwen Copper. It compares very favourably to Filo del Sol and Jose Maria, it is larger, with higher grades, lower elevation and amongst copper development projects in the worldwide copper pipeline, it is in the lowest cost quartile.
These metrics are exactly what is needed in copper mining as it has the grade and low costs and can be mined for decades. Los Azules is precisely what Dr. Copper has ordered.
McEwen Copper’s largest shareholder is McEwen Mining which holds 48.3% of the shares and a 1.25% NSR royalty. The next largest shareholder at 19% is Stellantis which is one of the world’s largest car makers with 14 iconic brands. Rio Tinto is one of the world’s largest mining companies and their Nuton holds a 14.2% interest. Rob McEwen owns a 13.2% interest through his personal investments into McEwen Copper.
This is a stellar shareholder registry. In Rob McEwen they have a mining industry legend, who built Goldcorp from a small gold mining company into one of the highest grade gold miners, while also one of the lowest cost gold producers that generated exceptional free cash flow and was one of the best performers amongst gold miners during his tenure. In Los Auzles, if one looks at it with gold metrics comparing grade, costs and annual production, it would dwarf Goldcorp in its heyday.
Stellantis, has some of the best known car brands worldwide in their portfolio with substantial car manufacturing in Argentina that will require massive amounts of copper. They are a natural fit for copper offtake from Los Azules. This would create a wonderful value add for Argentina by keeping some of the copper production in the country and adding domestic high paying jobs.
Rio Tinto is a household name in the mining sector. Their Nuton venture is doing very interesting work on increasing copper recovery and making it faster using their proprietary copper extraction technology.
As McEwen Copper is a private company, the only way to invest in it directly is as a qualified investor or through McEwen Mining. It has a compelling story, with a fantastic copper development project that has exceptional metrics and on the path to become a world-class copper mine of the near future.
Milei Magic Is Creating A Financial Miracle For Argentina
In Spanish: Milei Magic está creando un milagro financiero para Argentina
During the early 1900s, there was a famous saying, "Rich like an Argentine" as it was one of the top 10 wealthiest nations worldwide. The actions of President Javier Milei are putting the country on a path from many years of economic struggle to a renaissance of economic prosperity.
On August 8, 2024, McEwen Mining issued a news release with the headline below in bold which highlights key economic initiatives from President Javier Milei’s government. Highlights from the news release are in italics below.
McEwen Copper Update, Excitement in Argentina: Milei Magic Is Turbocharging Foreign Investments; US$4.4 Billion Copper Transaction by BHP and Lundin Mining; Los Azules Infill Drilling Confirmed High Grade Copper Zone
Remarkable and Welcoming Legislation – Milei Magic
President Milei’s government introduced legislation that has rolled out the welcome mat for large-scale domestic and foreign direct investments in Argentina.
This legislation recently approved by Argentina’s government is called "Bases and Starting Points for the Freedom of Argentines" and includes the Incentive Regime for Large Investors (RIGI), offering significant tax and foreign exchange incentives to encourage domestic and direct foreign investment in key sectors of the economy, including mining.
This program addresses most of all past stumbling blocks for sustained development of the mining sector in Argentina, and it's a huge step in the right direction.
We are excited about these changes as they open the door for many infrastructure investments in Argentina and significantly improve the economics of the Los Azules project and lower risks for investors.
President Javier Milei is turning the economics of the country around and is setting the stage for economic growth that the people of Argentina will be proud of and benefit from. In addition, Argentina is primed to become an economic powerhouse in Latin America that is an example that will be followed by other nations.
McEwen Copper Moving Toward A Bankable Feasibility Study
In the same news release they also announced a series of exceptional drill results and the completion of the drilling needed for its Feasibility Study in early 2025.
Infill drilling was completed to upgrade the resource for the feasibility study and returned thick intersections of high-grade copper. It also better defined the high grade zone of the deposit.
Drilling Highlights
Hole AZ24375, drilled to a depth of 369 m, returned 217 m of 1.11 % Cu in the enriched zone, including 100 m of 1.32 % Cu.
Hole AZ24335, drilled to a depth of 227.5 m, returned a 158 m intercept of 0.84% Cu within the enriched zone, including 78.5 m of 1.10 % Cu.
Hole AZ24403, drilled to a depth of 427 m, returned a 276 m intercept of 0.86% Cu within the enriched zone, including 160 m of 0.96 % Cu.
Hole AZ24320, drilled to a depth of 204 m, returned 146 m of 0.89% Cu in the enriched zone.
Hole AZ24332, drilled to a depth of 255.6 m, returned 119.6 m of 0.72% Cu in the enriched zone.
They noted in the news release that the highlighted holes within the zone of enriched (or supergene) mineralization mostly ended in mineralized material, indicating the potential for mineralization to continue at depth. The length of the enriched zone is 3.9 kilometers. The enriched zone now continues beyond the southern limit of the PEA mineable pit shell.
Copper Supply Is On A Path To Supply Crunches
A primary reason that the major mining companies are so eager to get more copper projects is because supply is weak, and based on the pipeline from mines to exploration it is poorly prepared for the future. Meanwhile, demand keeps growing and is projected to overwhelm supply in the near term and long-term.
Primary drivers of demand include power grid modernization in developed economies that have aging grids. Case in point is America’s power grid that in some regions is over 100-years old. In addition, building power grids in developing economies are consumers of large amounts of copper.
Of course everyone is aware of the massive demand from electric vehicles worldwide that not only need dramatically more copper than internal combustion engines, they also need powering stations that require impressive amounts of copper and home power stations that need upgrading.
Alternative energy sources also require massive amount of copper to build and get the energy to the consumer.
Technology is another consumer of massive amounts of copper. Crypto currencies, cloud computing, the internet and the new kid on the block all need copper and are putting additional pressure on the aging power grids.
The world wants all these shiny new toys, but falls well short in its understanding of the crucial role copper mining plays to build all of them and power them up. Politicians, corporations and consumers need to hug the copper miners.
There are some issues to consider for investors that want to make investments into copper projects. To prepare for a future of supply and demand fundamentals suggesting supply crunches with long term weakness that will be around for many years.
With the price of demand to go much higher, timing is shaping up nicely to take advantage of copper stocks with plenty of upside potential and minimal downside risk.
One of those issues is that the major copper miners are relying on very old mines, some that were found decades ago and are getting close to the end of their production. Meanwhile, discoveries have been in decline for the past two decades, precisely when more are needed to replace the aging copper mines.
Basically, for the past decade, a new Escondida needed to be found every year, which hasn’t even been close to happening. This issue, combined with the incredible demand growth is why it is clear that there will be copper supply issues for decades.
What made Escondida, and other behemoth deposits leaders in copper mining is that they are open pits in well known copper mining districts. Those kinds of areas have been gone over with fine tooth combs. The low hanging fruit has been found and built into mines.
Exploration for other giant copper mines has continued but because the low hanging fruit was well picked over, they are left to go into less well known geological districts. This takes time and money which over the past few decades have waxed and waned during periods of strong and weak copper prices.
Take for example the Vicuna district in Argentina, which looks like an overnight success now that BHP and Lundin Mining have made a takeover offer for Filo. In reality, it is an overnight success that took decades. The Lundin Group has been in that region for a couple decades looking for their buried treasures to lead them to overnight success.
Their impressive discoveries are in the development stages. Looking at the copper development projects, there just aren’t enough to replace the aging behemoth mines to ultimately prepare for the future demand.
Practically every development stage copper project needs to be turned into a mine, which won’t happen as some are stuck in permitting purgatory. The rest aren’t enough. To help move projects in the development stages forward more rapidly, permitting needs to speed up while it is slowing down, funding needs to pick up but copper mines aren’t cheap to build.
The net result of the issues facing the supply chain, from exploration to development copper projects and aging mines, is much higher prices for copper.
This will bring generalist investors into the copper stock space, when they arrive they will have a small menu of high-quality copper stocks in exploration and development.
Discerning investors still have the ability to get ahead of the crowd, but those days look numbered.
In Closing
Los Azules is a copper development project well positioned to become an important copper mine of the future. That can be mined very profitably with lower copper prices, while higher copper prices that are in the cards for the future will only add to its economic metrics. In the PEA, it is projected to last for 30 years and still remains open to grow bigger.
Will Los Azules become a future copper mine is pretty much a fait accompli.
In a way, I would love to see them take it through to production. It would be a fantastic free cash flow machine of a copper mine that would be a project that could be the foundation for McEwen Copper’s growth.
There just aren’t enough high-growth copper miners, while there are some projects that aren’t big enough for the majors, but would be tremendous assets for a growing mid-tier copper miner.
Bringing in a major mining company as a joint venture partner to fund the building of the mine, would also help McEwen Mining fit into the space as a developer of other copper mines that are too small for the majors.
Finally, a complete takeover by a major mining company at a significant premium would also be a wonderful outcome.
With all that is happening in M&A and the prospect for copper to go much higher in price, it is probably unlikely that McEwen Copper gets a chance to build it on their own. A joint venture with a major is likely not off the table. The most likely end game of a major mining company taking them over is improving on a daily basis.
The only question left is who will turn Los Azules into a highly profitable long life copper mine?
All the best,
Allan Barry Laboucan
Disclosure
Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.
