More mergers and acquisitions expected in copper market after Harmony deal
MINING
More mergers and acquisitions are expected for the global copper market in which South Africa is emerging as a key player amid a projected supply deficit.
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More mergers and acquisitions are expected for the global copper market in which South Africa is emerging as a key player amid a projected supply deficit.
There has been a flurry of investment activity in copper in the past few months, with Harmony Gold saying last week that it was acquiring Harmony the CSA Copper mine in Australia for R18.4 billion.
Last year, PwC said “the global pursuit of a just energy transition and the need for consolidation are reshaping the landscape of the South African mining” industry.
Now, analysts say there is likely to be further merger and acquisition activity in the South African and global copper industry.
Zimele Mbanjwa, an investment research analyst at FNB Wealth & Investments, told Business Report that single commodity producers are increasingly setting their eyes on copper assets, driving up sector investment activity.
“Gaining exposure to future critical minerals is a net positive and we can expect to see more of such transactions – particularly from single commodity producers,” said Mbanjwa.
Bruce Williamson, a mining analyst for Integral Asset Management, also said in an interview that more players existing in other commodities are seeking opportunities in the metal. He mentioned Barrick Gold, which has changed its corporate name to Barick to reflect its new interests in other metals such as copper.
“Barick is one big miner that has moved from only gold to copper. They had copper as a byproduct but they have started looking at what they have and are prepared to seize on opportunities in copper,” said Williamson.
Although at present the copper market is in surplus, Mbanjwa is forecasting a “longer term structural” deficit.
“Miners are not too keen on new greenfields projects given the high cost and unpredictability of execution, it makes sense for them to buy ounces right now particularly because of the near-term surplus scenario,” explained Mbanjwa.
The current supply surplus scenario for copper had resulted in copper prices, and companies with exposure, remaining relatively contained.
Moreover, global suppliers of copper concentrate have to meet specific quality required by concentrator operators who build refineries to handle certain concentrate grades.
There is also the need for cheap electricity to run concentrators at a time electricity costs are rising.
Other issues at play in the long term supply dynamics for copper are global geopolitical tensions and tariffs.
“China is one market that can buy concentrate, but the tensions with the US are coming into play. Supply of concentrate is tough and demand has remained strong given the increased demand from on EVs and data centers among others, said Williamson.
Even though the copper market appears to be ripe for investor activity, its not everyone who is chuffed up by the likes of Harmony and Barrick venturing beyond their single commodity focus.
Other analysts said some fund managers were still focused on single commodity producers and showing less interest in diversification into other metals.
Williamson said it was important for miners to pursue diversification into other sectors such as copper because they already had data and expertise on their ore bodies and were in any case already producing copper as a by-product.
“Some fund managers want single commodity companies. If you are a very good miner, if you come across a decent opportunity then you must take it because you already know the orebody,” he said.
BUSINESS REPORT