Copper M&A Mania – who’s next?

Barrick Gold's President & CEO Aaron Regent puts his stamp on the world's largest gold miner by diversifying into copper.

Copper record highs means the base metal is making headlines most every day; merger and acquisition mania is now in full flight. takes a look at a couple of TSX listed junior copper miners that noted CIBC analyst Ian Parkinson says are ripe for takeover.

But first, let’s revisit the manic events from earlier this year that ultimately culminated in Barrick Gold’s (TSX: ABX) $7.8 billion takeover offer for Equinox Minerals (TSX: EQN).

  • January 12, 0111 – Lundin Mining launches a friendly takeover of Inmet Mining – combined transaction value $9 billion.
  • February 28th, 2011 – Equinox Minerals launches a hostile takeover of Lundin Mining – transaction value $4.8 billion.
  • March 21st, 2011 – Lundin rejects Equinox bid.
  • March 22nd, 2011 – Lundin/Inmet deal hits a roadblock when Panamanian government rejects Inmet’s plan to use coal-fired power at its proposed Cobre Panama mine site.
  • April 4th, 2011 – Minmetals Resources launches hostile takeover of Equinox Minerals – transaction value $6.3 billion.
  • April 11th, 2011 – Equinox rejects bid from Minmetals.
  • April 25th, 2011 – Barrick Gold launches friendly takeover of Equinox Minerals – transaction value $7.7 billion.
  • April 25th, 2011 – Barrick’s offer quashes Equinox takeover of Lundin Mining.
  • April 26th, 2011 – Minmetal Reources retracts hostile bid for Equinox Minerals.

Clear? In what has undoubtedly been one of the most interesting three and a half months in TSX history, investors and industry experts are still processing this flurry of events that have Barrick, the world’s largest gold mining company, making a move that will double its copper production. Some analysts feel, two years after taking the helm of Barrick Gold, President & CEO Aaron Regent has put his stamp on Barrick with a bold diversification that marks a return to his roots. Regent is former President of Falconbridge, which was acquired by Swiss mining giant Xstrata in 2006.

Both in sheer volume and dollar value, 2010 was a record year in mining mergers and acquisitions. But given the frantic start to 2011, it is very likely that this year will eclipse it. We look at two copper mining companies – Duluth Metals (TSX: DM) and PolyMet Mining (TSX: POM) – that one analyst thinks may be potential takeover candidates, in all likelihood by Chinese concerns. China consumes almost forty percent of the world’s copper production yet holds only 6.3 percent of the world’s copper reserves, the key reason it has been purchasing stakes in copper assets, particularly concentrate producers.

Duluth Metals is developing a copper-nickel-precious metals project in the mining district of the Mesabi Iron Range in northeastern Minnesota and is the number one pick of CIBC analyst Ian Parkinson. Duluth topped his list of more than 160 companies when ranked by attributes including share price and the size, quality and likely production cost of their assets. Duluth owns 60 percent of the Nokomis Project in Minnesota and has the highest-grade copper among the 25 companies in Parkinson’s shortlist of potential acquisition targets. The company, based in Toronto, ranked third in the size of its resources and has the third-lowest likely cash cost per pound according to the CIBC analyst’s calculations. On March 7th, 2011 Duluth expanded its position in the area when it acquired all of the issued and outstanding common shares of Franconia Minerals Corporation (TSX: FRA) that it did not already own in a transaction valued at approximately C$77 million. Shares of Duluth Metals closed today at $2.40 down $0.04.

Second on Parkinson’s list is Polymet Mining which also plans to mine in Minnesota. Based on the CIBC report, Polymet would have the lowest cash costs and the most production per dollar of capital expenditures among the companies reviewed. Polymet Mining also ranked #1 in the Diversified Metals & Mining industry as measured by the potential gains between the current stock price and the projected average analyst target. According to Zacks Investment Research, Polymet has a potential upside of 132.3% based on a price of $2.15 at the time of the report and an average consensus analyst price target of $4.99. Polymet Mining’s shares closed today at $1.90.

Mike Luft

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