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Major Deals Mark Stealth Bull Market

As metals investors it’s easy to get caught in the day-to-day. And daily news does matter, especially if you’re invested in the kind of high-risk exploration stocks that lots of us buy. Tracking those stories closely is important because exploration successes or failures make or break junior stocks in a moment.

But every day my inbox is also filled with multiple long assessments of why metal prices moved half a percent this way or that.

There are lots of reasons for metal prices to move like that. Some of those reasons end up being significant, but most are not. And getting caught up in the day to day is not only time consuming – it also distracts you from the story that matters.

That story is the big picture. Are commodities broadly bullish or not? Are the reasons fundamental – related to supply and demand – or speculative? And if the situation is fundamentally bullish, like it is today, day-to-day gyrations hardly matter.

What matters is positioning for the big picture. And that is what major miners are starting to do.

In the last week metal prices slid, mainly because the escalating war of tariff words between the US and China lifted the US dollar. Trade wars also raise worries that growth will slow. Between a stronger dollar and growth worries, metals from zinc to gold gave up some ground.

But in the same week we saw three significant deals in the metals space. One targeted copper; one focused on zinc; one was for a gold-copper asset. And they weren’t small.

Majors are starting to spend real money on good assets because they look past the day-to-day and see significant supply shortfalls on the horizon.

Base metal prices have been strengthening for some time. Majors are dealing for assets. Equities aren’t responding yet – but they will, because several billion dollars worth of deals says there’s a stealth base metals bull market already underway.

The biggest deal saw South32 (ASX: S32) take out Arizona Mining (TSX: AZ) in a deal valued at $2.1 billion. South32 already owns 17% of Arizona; to acquire the rest the major offered $1.3 billion in cash. The target here is the Taylor project, a high-grade zinc lead silver deposit in Arizona that, according to initial studies, looks like it will support a very profitable and long-lived mine.

There’s lots I could say about this deal, but I’ll focus on just two things. First, premium assets command premium prices, even when the M&A market is still fairly mild. South32‘s offer came in 50% above Arizona’s trading price. Now, is that a huge premium or had the still-weak metals market not given Arizona enough credit for its project? Both, I would say. But what’s important is that really good assets like Taylor get bought at really good prices, regardless of what the zinc price is doing that month or whether other majors are also making deals.

The second thing I want to say about this deal is that Taylor is a great deposit but Arizona also did a really good job pushing the project towards production. Underground declines are permitted and underway; the tailings facility is half built; water treatment infrastructure is under construction.

South32 wants to build a mine, not own pounds in the ground, and by advancing Taylor on all fronts as fast as possible Arizona positioned this project perfectly. That’s a key lesson for juniors with good deposits – it’s not just about the geology, it’s about pushing a good deposit towards being a great mine.

I think this huge transaction will spark more zinc deals. There are hardly any good, advanced zinc assets out there – and I think with Taylor gone, deals for the others will follow.

Next on the deal list last week was Mitsubishi increasing its stake in the massive Quellaveco copper project in Peru from 18% to a cost of $600 million. This project, majority-owned by Anglo American, has been working its way along the development path for a long time – the first feasibility study was in 2000 – but it is a big asset, one that should product 300,000 tonnes of copper annually.

Big mines like that are costly to build and Quellaveco is no exception, with a rumoured capital cost of $5 billion. If that’s right, Quellaveco will carry a capital intensity of almost $17,000 per tonne of annual capacity. If you add in Mitsubishi’s $600-million purchase price, the company is paying almost $27,000 per tonne of added annual copper capacity.

That’s a high benchmark – but appropriate, I think, in that it captures the very real lack of projects that can provide future production. Big base metal miners are increasingly going to pay big bucks to secure future tonnes, as desperation sinks in.

There are ways to buy copper cheaper, of course. One is to buy an asset at an earlier stage. The other is to buy in a place most others aren’t willing to go. Even assets bearing both of those challenges can be darn valuable – as the third deal of the week showed.

That deal was IG Copper selling its massive Malmyzh copper-gold porphyry project in Far East Russia to the Russian Copper Company. We heard about the deal through EMX Royalty (TSXV: EMX), which owns 41% of IG Copper. IG in turn owns 51% of Malmyzh.

The overall terms of the deal were not disclosed but EMX did reveal it will bank $89 million, which means Malmyzh went for somewhere near $400 million. That’s a strong valuation for a large but early-stage asset in Far East Russia.

As mining investors we want action, the kind of attention and activity and share price moves that we get in a really strong bull market. When all we get is sideways metal prices and steady news, it seems like things are quiet.

But I think we’re in a stealth bull market already, especially in the base metals space. Base metal prices have been strengthening for years. Several billion dollars in deals last week certainly says things are heating up. So focus on the big bull picture and be positioned.

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Hi Gwen,

Thank you so much for this excellent Maven letter. Your market analysis and logic is again exceptional. Your insights, knowledge and feel have given me a wonderful couple of hours. I am now planning my activity. I look forward to seeing you tonight on the Virtual Metals forum, I am pleased that you start first as I am a morning not a night person.

I hope you and your family stay well.

Best Regards,


-CLB (May 14, 2020)

I appreciate the value of your experience and the information that you provide...there really is no one better. IMO

-TR (May 2022)