Alongside joint venture agreements, mergers and acquisitions provide a chance for both major and mid-tier mining companies to expand and consolidate their portfolios. Junior explorers with strong mineral assets and solid leadership can present a sound investment opportunity.
Fueled simultaneously by the clean energy transition and the race to net-zero emissions, demand for critical minerals such as nickel, lithium and copper is higher than ever. Analysts believe this will cultivate big growth in the market value of these materials. To an extent, we’ve already seen its beginnings.
According to a June 2022 report from PwC, market capitalization for mining companies targeting critical minerals outperformed the average of the top 40 miners by between 49 to 147 percent. The spike has taken alongside the average merger & acquisition (M&A) deal value increasing by 159 percent since 2019. This trend is expected to continue over the next five to ten years.
Copper made up the largest revenue share of critical minerals in 2021, with prices up 26 percent last year and expected to continue growing over the short term. Demand for the metal is also expected to increase 50 percent by 2040. Yet even this pales in comparison to the growing demand for lithium — according to Benchmark Mineral Intelligence, all the lithium mined this year would supply approximately one month by 2050.
The market for critical minerals is in flux. Changing fundamentals have caused major mining companies to re-evaluate their exposure, while market analysts recommend organizations revisit their deal strategies to identify new ownership and partnership opportunities. The entry of micro-investors and new junior mining companies into the space has the potential to create even further upset, but also even greater opportunity.
Facing down an unprecedented investment landscape
Alongside joint venture agreements, mergers and acquisitions provide an opportunity for both major and mid-tier mining companies to expand and consolidate their portfolios. In recent years, many of these companies have leveraged such deals to gain a larger foothold in the critical minerals space.
Clearly, the companies entering the space can see the writing on the wall and they understand that the current boom is likely only the beginning. These companies are moving to increase their involvement now, before the world realizes the critical minerals market’s true growth potential. However, it’s imperative that these businesses exercise caution in their dealmaking.
The current state of affairs is unusual, to say the least. COVID-19 was, for all intents and purposes, an economic millstone, greatly slowing M&A activity across multiple sectors. At the same time, Deloitte notes that many richly priced M&A transactions during the pandemic’s first year failed to deliver, leading to investor and shareholder displeasure.
This caused many investors to lose confidence in the mining industry, and only recently have companies begun making strides towards restoring it, thanks largely to the ballooning critical minerals market.
With this in mind, the current investment landscape for the mining sector can best be described as one of cautious optimism. Mining organizations are more than willing to invest capital into new businesses or sign joint agreements with junior mining companies. However, these investment targets must demonstrate quantifiable potential before any deal is finalized.
Most of the current M&A activity in the mining sector follows the same strategy. A mining company recognizes the long term potential of critical minerals, yet lacks a reliable supply of its own. Stakeholders then meet to discuss and assess potential candidates for either acquisition or a joint partnership.
Once a potential investment target is identified, the company assesses that target for its suitability. In some cases, the company may opt to partner with a rival or competitor to facilitate the purchase. In others, the company may just purchase its target outright, increasing the size of its own project portfolio as a result.
The recent amalgamation agreement penned between Abcourt Mines (TSXV:ABI) and Pershimex Resources (TSXV:PRO) offers an example of this in practice. In late November 2022, Abcourt agreed to acquire all issued and outstanding common shares of Pershimex. This resulted in the creation of one of the largest gold exploration portfolios in Quebec, Canada, with Abcourt’s claims now spanning multiple gold districts, cementing its future position as a diversified gold producer.
New Age Metals (TSXV:NAM) represents the latter use case, having recently signed a farm-in/joint venture agreement with Mineral Resources (ASX:MIN), an Australian lithium and iron ore producer. Under the terms of this agreement, Mineral Resources has the potential to secure up to a 75 percent interest in New Age Metals’ Manitoba lithium division. This is a common trait of such agreements, which typically see two or more companies working closely with one another on projects that may eventually see shared ownership.
A crop of promising juniors
Junior explorers represent a potential sound investment for major and mid-tier producers, depending on their respective investment criteria, which can vary based on a broad set of standards. Junior explorers are growing increasingly numerous as the mining sector continues to pick up steam, but not all exploration companies are created equal. There are several that could demonstrate greater promise and potential than their competitors.
A copper and gold exploration company primarily targeting Peru, Forte Minerals (CSE:CUAU,FWB:2OA,OTCQB:FOMNF) benefits not just from extensive mining expertise, but also a portfolio encompassing over 6,400 hectares of copper-rich landscapes. With increasing market attention on copper, Forte Minerals’ highly prospective portfolio of assets in the world’s second-largest copper producer makes its Peruvian projects an attractive investment or acquisition option.
With its long history of collaboration with Peruvian communities and a leadership and geoscience team with a successful track record in the country’s mining industry, Forte Minerals aims to achieve the best exploration outcomes in the most sustainable and environmentally responsible manner.
Other exploration companies showing good potential as an investment or acquisition target include: Thunder Gold (TSXV:TGOL), which combines geological modeling with a range of human expertise, Val-d’Or Mining (TSXV:VZZ), Peruvian Metals (TSX:PER) and Medallion Resources (TSXV:MDL).
The critical minerals market has fundamentally changed the way M&A deals are planned, assessed and executed in the mining sector. Given that this change has also come hand-in-hand with increased deal value, this is excellent news for investors and mining companies alike.
Source: Investing News
World Gold Council (WGC) data shows that while there’s been a rise in retail demand, central banks are hoarding gold at an extremely fast pace. A number of reports citing WGC data show that the central banks’ current demand for gold has risen at the fastest pace since 1967. China recently disclosed that the country purchased 1.03 million ounces of fine gold or the equivalent of 32 tons of the precious metal. China’s State Administration of Foreign Exchange detailed the purchase cost the country around $1.8 billion.
China has a reported 63.67 million ounces of gold, which is worth roughly $112 billion. Adrian Ash, the head of research at Bullionvault told Financial Times (FT) reporter Harry Dempsey that the central banks’ flight to gold may suggest “the geopolitical backdrop is one of mistrust, doubt, and uncertainty.” While China is among gold reserve giants like Germany, the U.S., Russia, Italy, and France, a number of smaller central banks have also been buying large quantities of gold. To single out a few specific examples, Turkey, Uzbekistan, and Qatar have accrued substantial sums of the precious metal in 2022.
Wells Fargo Real Asset Strategy Analyst Says Silver Is Signaling a Possible Precious Metals Bull Market Breakout
Wells Fargo’s head of real asset strategy, John LaForge, is looking at silver ahead of gold according to his recent commentary with Kitco News on Dec. 29. “I am a little more positive on silver now that we are back to $23. It is the high-beta play. Silver is showing signs that whatever weakness we see in gold, it is probably short-lived,” LaForge told Kitco’s Anna Golubova.
“When silver starts beating gold, it is closer to a bull market in precious metals versus the other way,” the Wells Fargo executive added. LaForge believes gold prices will be anywhere between $1,900 to $2,000 in 2023, and he insists it’s quite possible silver could outperform the yellow precious metal.
“Over a supercycle, which is 10+ years, percentage-wise, silver does better than gold,” LaForge remarked. “That’s what happened during the last cycle between 1999 and 2011. That is typical … You can sense gold wants to go higher next year. Gold had a rough two and a half years,” the Wells Fargo executive further elaborated.
“In the last couple of months, with all the talk about the Fed pivoting, gold started to perk up. Next year, both gold and silver will do well. Silver might do even better,” LaForge concluded. So far, with a 23.29% increase compared to gold’s 11.48% jump since Nov. 3, silver is doing a lot better than gold against the greenback. Platinum, too, has jumped a great deal, rising from $915 per ounce 56 days ago to today’s $1,051 per ounce.