AFR Street Talk today:
Sandfire Resources has joined a long line of suitors for Khoemacau Copper Mining in Botswana, as sell-side advisers tell interested parties they could be digging out 60,000 tonnes of the commodity annually, and book in some $US250 million ($369 million) in earnings.
ASX-listed Sandfire Resources is working with Standard Chartered’s Asia Pacific bankers to help it weigh a bid for Khoemacau, which has already spurred South32 to hunker down with RBC Capital Markets.
Khoemacau is expected to be worth north of $US2 billion and a 20-page flyer seen by Street Talk fleshes out the sellers’ reasoning for why the mine is worth the money. (Bank of Montreal and Credit Suisse are selling 100 per cent on behalf of owners Global Natural Resources Investments and Resources Capital Fund VIII LP).
The asset is being pitched with a 20-year mine life and ready to produce 60,000 tonnes of copper and 1.6 million ounces of silver concentrate annually to 2026 – with a pathway to double production. Its flagship orebody is Zone 5, but there’s plenty of “white space” for further drilling on Khoemacau’s 4040 square kilometres of land.
It’s an underground mine yet modern and well-connected to infrastructure including ports in Namibia and South Africa, according to the material. Botswana has “strong political support” for mining with “transparent regulation” and has a sovereign risk rating of BBB+ from S&P, the flyer says.
Of course, the flyer contained classic sliced-and-diced league tables found in investment banking presentations the world over. Should Khoemacau succeed in doubling its production to 130,000 tonnes of copper a year, it would be the eighth-largest copper mine in the world among those built or expanded between 2017 and 2025, the advisers said.
At current run rate, Khoemacau’s new owners should expect to make about $US250 million in EBITDA annually. But mooted expansion to double the annual production (130,000 tonnes copper and 5 million ounces silver) would kick its earnings to $US730 million, according to preliminary forecasts contained in the flyer.
The teaser was at pains to say that Khoemacau wasn’t just an imaginary road to riches, but had previously hit target production rates and deployed more than $US1 billion across equity and debt from current and previous owners.
Non-binding indicative offers are due in a few weeks.With a market capitalisation of $2.75 billion, Sandfire Resources would be testing Khoemacau from every direction to decide if it wants to take a bite. It was tipped as a suitor for Khoemacau early on – thanks to its own Botswanan mine Motheo – but it is less than two years out from splashing $US1.9 billion on Spain’s MATSA.
The same goes for South32, even though it’s bigger at a $17.7 billion market capitalisation. The miner’s biggest M&A play since it was spun out of BHP Billiton eight years ago was spending $US2.05 billion to buy a 45 per cent interest in Chilean copper mine Sierra Gorda from Sumitomo in late 2021.
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Ash here.
Sandfire's balance sheet is laden with recently re-termed debt and in no condition to support or even contribute to a $US2b purchase. A cap raise to double equity is beyond comprehension - the discount would be horrendous - despite the obvious merits of combining Motheo and Khoemacau.
By comparison, S32's very strong balance sheet could readily fund $US2b, proven with the smooth buy of Sierra Gorda. SFR would then be in S32's sights as well. It might have to raise fresh equity for the second transaction, which the market would readily support given GK & team's solid track record.
S32 owning Motheo, Khoemacau, Matsa and Sierra Gorda would be a big tough Cu beast, with a range of quality high-margin operations in other base metals, a must-own for anyone positioning for the electrical revolution currently underway.
We dont know if $US2b is the final price. Every major Cu miner in the world will also be considering a bid.
Ash
Double posting this on HC S32.
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