Market Overview

Freeport-McMoRan Inc. Could Acquire One Of These 6 Small Cap Miners


As a global mining giant and the world's largest publicly traded copper producer, Freeport-McMoRan Inc. (NYSE: FCX) is well positioned to make an acquisition or two, especially since it was sitting on nearly $1.5 billion in cash as of June 30, 2014. The following small cap companies could be on Freeport-McMoRan’s radar:

As a global mining giant and the world's largest publicly traded copper producer, Freeport-McMoRan Inc. (NYSE: FCX) is well positioned to make an acquisition or two, especially since it was sitting on nearly $1.5 billion in cash as of June 30, 2014. 

Possibly holding Freeport back, though, is its debt level – $17.5 billion at the end of the second quarter, much of that due to the $9 billion acquisitions of Plains Exploration & Production and McMoRan Exploration in 2012. At the end of last quarter, Freeport's debt-to-equity ratio stood at 0.82, compared with Newmont Mining (NYSE: NEM) at 0.65.

Although the company has been recently diversifying into oil and gas, its bread and butter so to speak is still copper and, to a lesser extent, gold, molybdenum, and cobalt. It could make sense, then, to acquire a company at this stage of the resource cycle, especially if it’s strategically located near Freeport’s other operations. 

With the gold price slumping of late, copper could be set to shine. Commodities trading house and miner Glencore PLC, in fact, recently provided an optimistic outlook for the copper market, forecasting strong demand from both China and the West in the second half of 2014. The following small cap companies could be on Freeport-McMoRan’s radar:

Rio Alto Mining (TSX: RIO): After striking a deal to buy Sulliden Gold (TSX: SUE), the hunter could be the hunted. The newly-merged company operating out of Peru is expected to produce about 300,000 ounces of gold annually within the next couple of years. Rio Alto forecasts its all‐in sustaining costs of US$824 to $911 per ounce in 2014, and recently announced second-quarter net income $15.2 million. Rio Alto expects its cash flow to continue to grow into the future. Freeport-McMoRan already has its Cerro Verde copper and molybdenum mine in Peru as well as three mines in neighbouring Chile, which includes gold and silver from Ojos del Salado and Candelaria.

Trevali Mining Corporation (TSX: TV): Although primarily a zinc play, Trevalihas poly-metallic projects in Canada and a producing zinc, lead-silver mine in Peru, where Freeport also has operations. Much of Trevali’s upside will come from its Caribou mine and mill in New Brunswick, which is expected to begin production in 2015. Glencore, which owns about 6% about Trevali, may have something to say though if another company takes a run at it. 

Taseko Mines Limited (TSX: TKO): Taseko is the 75% owner and operator of the Gibraltar Mine, the second largest open pit copper-molybdenum mine in Canada, as well as owner of the New Prosperity Project in British Columbia, one of the largest undeveloped gold-copper deposits in the world. Taseko’s stock price has taken a hit recently after the Canadian government rejected its development proposal for New Prosperity, saying it would damage the environment and nearby aboriginal communities. Taseko Mines, however, announced recently an all-stock deal to acquire Curis Resources Ltd. ( TSX: CUV), which is developing the 2.4 billion pound reserve Florence Copper project in Arizona. The Curis deal makes Taseko more appealing to Freeport-McMoRan as Freeport is headquartered in Arizona and has five operating mines in that state, in addition to two in neighbouring New Mexico. 

Ivanhoe Mines (TSX: IVN): Ivanhoe boasts that it has the world's largest undeveloped, high-grade copper deposit in its Kamoa Project in the Democratic Republic of Congo (DRC). It also has a 68% stake in the Kipushi copper-zinc-germanium-lead mine in that country. Freeport already has a 56% interest in the TenkeFungurume copper/cobalt mine in DRC. Further upside to Ivanhoe Mines’ share price could come from its 64% ownership in the Platreef platinum-group elements project in South Africa. Billionaire mine developer Robert Friedland owns about 25% of Ivanhoe Mines and Ontario Teachers’ Pension Plan has an 11% stake in the company.

Nevada Copper Corp. (TSX: NCU): The company is developing its advanced stage Pumpkin Hollow copper project in the mining-friendly state of Nevada. Pumpkin Hollow contains 5.22 billion pounds of Proven and Probable copper in which its reserves, according to the company, are currently valued by the market at just 3.4 cents per pound. The property is also thought to contain 989,000 ounces of gold and 32.9 million ounces of silver. Nevada Copper is currently sitting on about $18 million in cash. The project has good infrastructure and is expected to begin production in 2016. It is appealing due to its proximity to Freeport’s Arizona operations. 

Barisan Gold Corporation (TSXV: BG): This would be a longshot but the $7 million market cap Indonesia gold projects developer would be pocket change for a company such as Freeport-McMoRan, which is already mining copper and gold at its Grasberg operations in that country. According to newsletter writer Bob Moriarty, Barisan will be “the owner of a billion dollar project down the road.” (Read his report here

While other companies could have been included in this list, these six were chosen based on one or more of the following factors that include: assets in politically-secure jurisdictions, reserve/resource size, low production costs or estimated production costs, as well as having mines and/or development projects located near existing Freeport-McMoRan interests, which could result in potential cost-saving synergies. 

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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