Should Gold Miners be Acquiring Copper?
Citi banker suggests there are more red metal acquisitions to be made by gold miners
Despite a string of deals that saw gold miners diversify into copper, there could be more to come.
Barrick Mining Corporation (TSX: ABX) has made no secret of its desire to grow its copper exposure, recently dropping the “Gold” from its name.
Newmont Corporation (NYSE: NEM) acquired Australia’s Newcrest Mining in late 2023, a move that increased its copper production and pipeline.
In early 2024, Evolution Mining (ASX: EVN) acquired the Northparkes copper mine in New South Wales, after buying Glencore’s (LSE: GLEN) Ernest Henry copper mine in Queensland a few years earlier.
Citi managing director, head of metals and mining Rowan King told the AFR Mining Summit in Perth this week that there was more to play out in that space.
“One of the thematics we're seeing right now is the copper-gold ratio, which not everyone's that interested in, but we are, is at all-time lows,” he said.
“In the last 20 years, the copper-gold ratio has been where it is now three times – other than now that was in the GFC, the mining crisis of 2015 and during COVID.
“So what does that mean? Well, it means gold companies, on a relative basis, are best positioned to be buying copper.”
King said Citi’s gold clients outside of Australia were very in tune with the thematic and keen on copper.
“But our Australian clients, other than Evolution, for the most part, are very cautious about that thematic, and they listen to shareholders, and shareholders say, ‘no, we want your gold pure-play premium. Don't do anything silly. Don't go and buy another commodity’,” he said.
“We hear that, but gold won't be where it is forever. And like I was saying before, copper is something everyone wants, no matter what global thematic you poke a stick at.
“So, we hope there's a bit more activity in that space, taking advantage of that relativity, but it does need some certainty out of the US before big strategic bets can be placed.”
Motivated sellers?
There’s been a string of multi-billion dollar gold deals so far this year, including the merger of Equinox Mining (TSX: EQX) and Calibre Mining Corp (TSX: CXB), Ramelius Resources’ (ASX: RMS) proposed acquisition of Spartan Resources (ASX: SPR), and Gold Fields’ (JSE: GFI) takeover of Gold Road Resources (ASX: GOR).
Evolution executive chairman Jake Klein told the same event that the record gold price was not an impetus to do deals.
“We're all operating in cyclical businesses, and the time to buy is when prices are down and there's a motivated seller. I don't see any motivated sellers in the gold industry at the moment. I see people dining out at fine restaurants, enjoying the benefits of a high gold price,” he said.
“I think we've been more disciplined than we have in the past, but you're seeing signs of ill discipline creep in. You're seeing lots of deals being done now.
“It's hard to argue that it's bottom of the cycle at the moment. We may not be at the top, but we're not at the bottom, and they are deals being done. Low grades are being mined, and that's where always people get exposed when the price goes down.”
King noted Klein’s comments but said the deal-making in the gold space would roll on.
“There is an argument for those that are leveraged operationally to the gold price to be using that opportunity to improve their portfolios and even extend life or buy a higher quality, lower cost asset, so that's something that that we should see continue to play out,” he said.
“And equally, it's a good time to be selling assets. If you've got a portfolio with a high-cost asset, it's a very logical time to be recycling that into a smaller company that can probably manage it better and bring costs down, so the gold thematic will still play out to a greater extent.”