The world of copper exploration and mining has become increasingly important in recent years as the demand for copper continues to grow. Copper is an essential component in various industries such as construction, manufacturing, and technology. As the world population increases and urbanization continues to expand, the demand for copper is expected to increase even further. As a result, copper stocks have been in the spotlight as investors seek to capitalize on the growing demand.
Ivanhoe Mines Ltd., a Canadian company with three ongoing copper projects located in the Democratic Republic of Congo (DRC) has remained in the spotlight through the past few years as it continues to grow and develop its flagship project. The company’s flagship project is the Kamoa-Kakula project which is owned 39.6% by Ivanhoe, 39.6% by Zijin Mining, 0.8% by Crystal River Global, and the balance (20%) by the DRC government. It’s projected to be the world’s highest-grade major copper mine, with an initial mining rate of 3.8 Mtpa, ramping up to 7.6 Mtpa in Q3 2022. The company also has two other projects in the DRC, including the Kipushi zinc-copper-silver-germanium mine and the Platreef platinum-palladium-nickel-copper-gold project. By 2050, Ivanhoe intends to position Kamoa-Kakula as the world’s fourth-largest copper producer with costs in the lowest quartile. making them possible takeout targets for larger mining companies.
Solaris Resources (TSX:SLS) (OTCQB:SLSSF) is a junior copper exploration company with its flagship 100%-owned Warintza Project in southeastern Ecuador. The company holds one of the greatest greenfield copper development opportunities on the board that majors will be picking from to acquire copper projects for their pipelines. Solaris released a mineral resource in April of last year outlining 1.5 billion tonnes of 0.5% copper equivalent primarily from the Central deposit – which is one of the four discoveries made on the property to date.
This is a large copper resource by any global scale, but importantly, the resource includes a high-grade starter pit of 0.3 billion tonnes of 0.8% copper equivalent to front-end load the cash flows and generate robust economics. Analysts published that this starter pit generates a $50 per tonne margin, which at 40 million tonnes per annum would generate $2 billion per year of EBITDA for nearly 7.5 years within a nearly 40-year mine life. That translates into a capital payback period of approximately two years which is unheard of for a project of this scale. The resource inventory is surrounded by three adjacent discoveries with footprints of equal or larger size representing multiple times growth potential.
In addition, the company recently discovered a new potentially well-mineralized porphyry, called Patrimonio, located immediately southwest of the mineral resource shell where drilling is expected to begin at the end of April. If successful, the Company may be able to discover a second high-grade starter pit, amplifying the economic proposition of the project even further.
Solaris Resources’ exploration success illustrates the promising upside that copper exploration stocks can offer, especially in a potential acquisition scenario.
Hudbay Minerals Inc., a Canadian company with mining operations in Canada, Peru, and the United States recently solicited to buy peer Copper Mountain Mining Corp (TSX:CMMC) in a $439 million all-share deal to boost its copper portfolio. The deal is the latest in a wave of buyout offers across the mining sector, as companies look to expand their copper footprint. The company’s flagship project is the Constancia copper mine in Peru, which began production in 2015. The company also has other copper projects, including the Rosemont copper project in Arizona and the Pampacancha copper-gold-silver project in Peru. The combined company would create the third-largest copper producer in Canada and the deal could unlock $30 million per year in operating efficiencies and corporate synergies.
Valuing Exploration Projects
Exploration companies are responsible for finding new copper deposits, and their projects are valued based on several factors. One of the most important factors is the size and quality of the deposit. Projects with larger, higher-grade deposits are more valuable than those with smaller or lower-grade deposits – especially if the high-grade is presented within an open pit. The infrastructure needed to extract and transport the copper is also a significant factor in the project’s value. Projects with access to nearby reliable infrastructure such as roads, power, and water tend to be more valuable. Finally, the political and regulatory environment in which the project is located is essential. Projects located in stable political and regulatory environments are more valuable than those in unstable regions.
What Makes a Great Project
A great copper exploration project is one that has a significant deposit of high-grade copper ore that can be economically extracted and processed. The project should also have access to reliable infrastructure such as roads, power, and water, as well as a supportive political and regulatory environment. In addition, the project should be located in an area with low exploration risk, meaning that the geology is well understood, and there is a high likelihood of finding a significant copper deposit.
How the Takeout Process Generates Value for Shareholders in Copper Exploration Companies
The takeout process is the acquisition of an exploration company by a larger mining company. When a major producer acquires an exploration company, it gains access to the exploration company’s assets, including any copper deposits it has discovered. This can be a cost-effective way for major producers to acquire new reserves of copper, as exploration companies have already done much of the expensive and time-consuming exploration work.
The takeout process also generates value for shareholders in exploration companies. When a company is acquired, shareholders typically receive a premium on their shares, reflecting the value of the company’s assets. This can be a significant windfall for shareholders who have invested in the company. Furthermore, shareholders can also benefit from the increase in share price that often accompanies acquisition rumors.
Why So Many Explorers are Acquisition Targets Right Now
The demand for copper is increasing, but the supply of new projects from major producers is limited. This has created a situation where exploration companies are in high demand, as they represent a potential source of new copper reserves. Major producers are willing to pay a premium to acquire exploration companies and gain access to their copper deposits.
Copper exploration companies have also been facing increasing challenges and costs. The low-hanging fruit of copper exploration has already been picked, and companies now have to dig deeper and explore more challenging terrains to find new deposits. This has increased exploration costs and made the exploration process riskier, leading to fewer discoveries. As a result, the value of exploration companies with promising copper deposits has increased, and major producers are eager to acquire them.
Another factor driving the demand for copper exploration companies is the push towards sustainable mining. Copper is essential in renewable energy technologies such as wind turbines and solar panels. As the world moves towards a more sustainable future, the demand for copper is expected to increase further. Major producers are eager to acquire exploration companies that have demonstrated a commitment to sustainable mining practices. This is set to drive the market dynamics for the entire industry in the coming years, and set the stage for a future in which critical metals like copper are some of the most valuable to our society and economy.
