Fortescue Makes Moves At The Alta Copper AGM To Make Changes To The Board Of Directors
Clearly copper demand is rapidly growing, what is not clear is where the mining sector will develop new mines. Alta Copper's Canariaco is one of few in the development pipeline with robust economics.
Alta Copper owns 100% of the Canariaco copper development project in Peru. Canariaco ranks as one of the top 10 undeveloped copper projects in the world, with robust economics recently reported in their optimized preliminary economic assessment. Fortescue (one of the world’s largest mining companies) owns approximately 31% of the shares in Alta Copper.
On Friday, June 28, 2024, Alta Copper had their annual shareholder meeting. Fortescue withheld their votes on certain directors, which have tendered their resignations, while voting in favour of other directors.
The fact that Fortescue decided they wanted to be an activist shareholder concerning the team running Alta Copper is a very interesting move. The fact that Fortescue is a significant shareholder of Alta Copper and likely wants to enhance the board speaks volumes about their opinion of the quality of the Canariaco project.
For a major mining company to be a big shareholder in a junior company like Alta Copper. And taking actions that they believe will move the Canariaco project forward on their timeline is impressive and a key point for investors.
One move that has not been lost on me is that months ago, Fortescue took the chance to put their top mine builder on the board of Alta Copper. They had several candidates that they could have chosen to add from their team, picking their top mine builder suggests to me that they believe Canariaco is a mine of the future.
Another point that I find important is that a huge mining company is engaged enough to be paying so much attention to a small cap company like Alta Copper. First by adding their top mine builder to Alta’s board and now holding back their votes on certain directors while endorsing others.
The actions of Fortescue sees Canariaco as a path to them getting into the copper mining business. It makes me think of something Rick Rule says about why he likes prospect generators.
His reasoning is that when a junior prospect generator is able to bring in a major as a partner on a project the major does his due diligence for him. Just as important, after the major does its due diligence they choose to put their own money into the prospect generator’s project. Which ultimately signals to him that they like the project and are willing to spend their own money to drill the project.
Alta Copper is not a prospect generator, but they have Fortescue as a 31% owner of the stock. So just like Rick Rule’s prospect generator thesis, Alta Copper has gone through Fortescue’s due diligence and decided to become a major shareholder. Sending the message that they like what they see and not only put their money into Alta’s stock, they have also put their top mine builder on the board.
Fortescue’s actions at the Alta Copper AGM, suggests they want further changes at the board. My guess is that they want to add directors that will allow for more in order to advance the project faster. And that they think by adding new directors and reconstituting the board will allow for the more rapid development of Alta Copper.
Actions speak louder than words. What I hear from the actions by Fortescue concerning Alta Copper is that they see Canariaco as a key asset for their efforts to get into the copper mining business.
Canariaco is a big copper development project with a long mine life and robust economics using a discounted price to the current price of copper in their recent optimized PEA. Clearly the recent very robust PEA results is what triggered this action by Fortescue. The economics simply are very leveraged to copper prices and for every U$0.25 increase in the copper price the After Tax NPV increases by approximately US$425M.
Due to the lack of copper projects in the pipeline for development and the strength of demand growth, it is no wonder so many Wall Street analysts are predicting copper is going much higher.
Big projects like Canariaco need major mining companies to build them. Fortescue has a leg up in being the partner of choice with their 31% ownership of Alta Copper.
Some shareholders feel that this gives them carte blanche to takeover Alta Copper at a discount, not a premium or even fair value.
What is not well understood is that there are securities rules that put some kinks in that analysis. Under securities laws the remaining 69% of the shareholders are protected to ensure they get a valuation that they support by way of 2/3 of the votes cast at a special shareholder meeting that does not include Fortescue share position.
Additionally, any offer by Fortescue has to be supported by an independent valuation that any shareholder can contest. Securities laws are in place to protect the minority shareholder for this very reason so to suggest this will allow Fortescue to buy Alta Copper at a discounted value is not correct.
In order for Fortescue to own Canariaco outright will need the support of shareholders as to what price they pay. Fortescue is well aware of these regulations, they have to play nice with Alta Copper.
There is another factor to consider. A trend has been developing that major mining companies are investing in copper explorers and developers. They understand that when it comes to big copper projects in development, the cupboard is pretty bare.
A shift is happening that I have never seen in my 30-year career in mining. The majors are playing nice with the explorers and developers. This says to me they clearly understand that those smaller players have the projects that they need. Thus, they are doing junior-friendly deals that suggest to me that they want to be the partner of choice for the smaller companies in the minor leagues.
The mining business is a small world, if they are abusive to the juniors, they will not become the partner of choice. They see the directions of supply and demand clearly because they have the most data. They are well aware of the issues with copper supply and the rapidly growing demand that is on its way to creating supply shocks for copper. Being the partner of choice is a crucially important strategy that will pick up steam.
I’m extremely bullish on copper, I have seen copper go from 60 cents per pound in the past to recently trade over $5 per pound. I have also been watching the pipeline of exploration, development, new mines and the aging of a group of world class copper mines that collectively has weakened the copper supply chain.
While this is happening, we are seeing demand grow to modernize developing economies, plus there is a push for alternative energy, electric vehicles and technology put significant strain on the supply chain. It just isn’t ready to meet these demands.
Then you have things come out of left field that surprise the copper market. Earlier this year, Panama made moves that resulted in the closing of the Cobre Panama mine that supplied a couple percent of the world’s copper. This drove copper from well under $4 per pound to over $5 per pound in short order. It was not expected by copper traders and blindsided those who use copper.
Another event out of left field is the rapid growth in the Artificial Intelligence business. This is a massive user of energy. Many believe this is the second coming of the internet. It has come into play extremely rapidly. Tons of technology companies are jumping into the business in a similar way as during the Dot-com era.
What I don’t see happening during this AI juggernaut is people realizing the immense energy AI needs, nor how much copper is going to be needed to make it reality.
The supply chain of copper was already moving toward a supply crunch, AI only exacerbated the supply issues.
Many were questioning why China was buying so much copper when their housing market was challenged. The answer is that they foresaw the copper demand that was emerging with the growth in AI. They could see the order flow and knew they needed more copper.
Plus, they realized that the supply chain was already stressed from the demands coming from the sources mentioned above and that AI was going to make the supply chain issues worse.
Not only do the Chinese see the supply problems, the major mining companies do as well which is why they all want to increase their copper assets.
But, demand can grow as it has been and ramp up. What is harder to do is find the new copper mines, go through the development stages to assess if they are economically viable, then permit them, and fund the building of them and then build them.
The copper supply chain is challenged by depending on old world class mines that are not able to meet the demand while they get closer to the end of their lives. The weakness in the supply chain is here to stay and will only get worse as demand overwhelms supply. There are no quick fixes to the weakness in the copper supply chain.
As this becomes reality it will drive copper prices much higher and reveal how badly the mining sector needs new sources of copper production.
Canariaco is a copper development project that the mining sector needs. Fortescue has already recognized this reality.
Alta Copper sits in a very good position with their 100% ownership of Canariaco. At the end of the day, I think there is a pretty good chance that Fortescue will be the one that builds the mine at Canariaco if it becomes a future mine, which I think it will.
The bottom line for me is that Fortescue thinks highly of Canariaco and to get 100% ownership will require them to play nicely with Alta Copper.
If they want to own it, they will have to make an offer that will be attractive to the shareholders and this will likely be a price that will be much higher. As Alta remains one of the few copper developers that has received this much interest from a major global mining company. Fortescue doesn't get to vote their shares in a transaction, they will have to convince two thirds of the shareholder that they should vote in favour.
All the best,
Allan Barry Laboucan
Disclosure
Alta Copper is a sponsor of Rocks And Stocks News, they are presented for the benefit of the company. Their sponsorship also benefits readers and viewers of Rocks And Stocks News reports as it makes possible the reporting to be free of charge. Allan Barry Laboucan is a shareholder of Alta Copper’s common shares.
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