Will someone bid for these small-cap miners?

With the mining sector awash with takeover activity, John Meyer, an analyst at SP Angel, tells us which stocks look vulnerable to a bid.

M&A activity in the mining sector took off last year and has continued into 2018. Why?

The M&A is building up at the moment. We’ve seen a number of transactions in recent weeks. We've got a big fight over an iron ore project in Australia right now. We've seen the Chinese coming in, they’ve been buying copper, lithium, cobalt, all sorts of things. 

So, there is a lot of potential in the world markets where the Chinese are often trying to dominate and where the European Union, the United States are also looking for national champions to make sure that these things are not necessarily completely dominated by the Chinese going forwards.

Which sub-sector is likely to witness most activity?

I would suggest looking at any copper stock. Almost all copper stocks around the world, I think, are up for grabs, but in particularly friendly countries … Zambia, where the economic environment and the local operating environment's quite helpful. Chile, of course, is always another one. Slightly more expensive as an operating environment, but very good and well-defined for developing mines in, and lots of copper resources there. 

There are a few copper stocks out there in the marketplace that we think are very exciting, Arc Minerals Ltd, which is in Zambia. They’ve just consolidated the Zamsort asset which has historic good quality drill holes on the property. They are now drilling it in order to reconfirm those numbers. I think the market will be excited when those numbers come through. 

Another copper stock is Asian Mineral Resources Ltd in Indonesia. Very good quality copper drilling, long intersections of high grade copper. Yes, it’s Indonesia which is a tricky place but, you know, sometimes it’s worth being in a difficult place if the property looks good enough. 

So, Asiamet Resources Ltd trades well in the market and certainly is very exciting as a copper discovery, and I think somebody’s going to want to come in and buy this.

Are the larger miners in play, or is it mostly small-caps getting snapped up?

So, M&A is heating up in the sector, Atlas Iron is being bid for. In fact, fought over by a couple of rival groups in Australia. Gina Rinehart was coming in with Redstone Resources Ltd, $390 million offer. That is being blocked potentially by Fortescue Metals Group Ltd who also want to come in with a rival offer, we think. So, they're all running their slide rules over this because they've got an iron ore project which they think they can upgrade to sell better quality iron for big premium prices and they think they’ll make a massive uplift on their money, there. 

Also, in Arizona, no surprise, Arizona Mining Inc. It’s got 101 million tonnes of 10% zinc, that’s quite nice. They’re being bid for by South32 Ltd, that’s a $1.8 billion bid. So, there is a lot going on in the space right now and I think we’re going to see many more of these acquisitions coming, with major groups looking to buy develop-ready projects or projects that can be upgraded in value in some way. I think there’s a lot of potential in this market for that.

Do any stocks look particularly vulnerable, or attractive to a potential acquirer?

Newcrest successively bought a couple of stakes in SolGold. The value of that went up to $400, $500 million and, of course, they funded the major drilling programme at the project in Ecuador. That looks very interesting but, for me, what’s really exciting about SolGold is they now own a lot of ground in Ecuador which they are exploring on and where I think further discovery is going to be made. So, I think there's a lot of further upside to come from this. 

We've got Bluejay Mining, for example. It’s an industrial mineral with titanium mineral sands, it’s world-class. It's the type of asset that the majors are going to run their numbers over, if you're in the mineral sands business. If you're either a competitor like Iluka Resources Ltd or you're a major that's consuming the material like Rio Tinto, for example, then I think it's something … it's a must-have.

*ARC Minerals is represented by SP Angel