10 resources stocks tipped as 2024 takeover targets
Tom RichardsonJournalistDec 5, 2023 – 1.42pmListen to this article6 minA spectacular lithium price crash in 2023 is fuelling speculation over a new acquisition scramble for junior resource players, as mining majors and billionaires seek to dominate the supply of commodities key to the clean energy transition.
Analysts and fund managers say 2023’s megatrend to consolidate junior lithium players could spill across future-facing commodities as dozens of listed hopefuls seek capital injections to fund projects or boost balance sheets under pressure from high interest rates.
“We’ve always said the lithium industry is short of capital, and there’s not been the capital required to meet demand,” says Reg Spencer, the head of mining research at wealth advisory and brokerage firm Canaccord Genuity.
“We think the industry needs $55 billion of capital injected between now and 2030. So, you need the entry of larger, more experienced, and better capitalised companies to make it happen.”
Lithium deposits and miners in Australia. AFR
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AdvertisementSpencer says listed explorers outside of Australia in developed jurisdictions such as Canada may be the next takeover candidates for any investment group seeking to profit from the demand for battery ingredients.
Canada’s potential time in the sun comes after Australia’s lithium blitz of 2023 was typified by the fight for control of Liontown Resources between US mining giant Albemarle and Gina Rinehart-backed Hancock Prospecting, with rival billionaire Chris Ellison of Mineral Resources doing deals for lithium juniors Delta Resources, Gascoyne Resources, and Develop Global.
Spencer thinks ASX-listed and Canada-based junior Winsome Resources is likely to attract bidders. At $1.13 per share, Winsome boasts a $200 million market cap thanks to its Adina and Cancet lithium projects in Quebec.
“Winsome will bring out its maiden resource estimate in the next few weeks and has strong potential,” Spencer says.
The explorer’s tenements are near ASX-listed Patriot Battery Metals, which is subject to ongoing takeover speculation and attracted a $CAD109 ($122 million) investment from Albemarle in July 2023.
Portfolio manager Rick Squire from Acorn Capital’s NextGen Resources Fund reckons both Winsome and Patriot are takeover candidates.
Squire adds that $813 million lithium explorer Wildcat Resources is causing a stir after its ASX stock rose from 3¢ to 68¢ over the past year.
“All have large lithium deposits with thick bodies of spodumene-bearing pegmatite that are reasonably close to the surface,” Squire says.
“Size, thickness and depth are important because they make the deposits easier to mine and reduce metallurgical problems that can arise from dilution.”
Elsewhere, in Canada’s emerging lithium sector, speculators could look to ASX-listed Green Technology Metals, according to portfolio manager Romano Sala Tenna at Katana Asset Management.
“Green Tech is the most advanced in terms of [licence] approvals, it has a good management team, simple flow sheets, and it could be a nice bolt-on acquisition for some of the mid-cap US producers,” the Perth-based stockpicker says.
Latin Resources is named by Spencer as another ASX-listed but overseas-based junior to watch.
“It’s capped at about $500 million and they’re about 60 kilometres from a newly built lithium company started out by [Nasdaq-listed] Canadian company Sigma Lithium, which is now running a sales process for itself at around $4 billion,” he says.
Finally, in the lithium space, Sala Tenna says not to rule out an opportunistic bid for a heavily shorted victim of the collapsing lithium price, Pilbara Minerals.
“Rio is probably one of only two players globally that could take out Pilbara, and its long-life assets fit well with Rio’s operating centre, so believe it or not, I think Pilbara’s still a possibility,” he says.
Rare earths miners outside China may also attract takeover attention as they’re strategically important to Western interests, given China’s domination of the supply chain, Sala Tenna says.
In 2019, investment conglomerate Wesfarmers failed in a bid for ASX-listed Lynas, which has mines in Malaysia and Western Australia.
Sala Tenna says Lynas’ strong outlook and strategic importance could attract renewed attention from big players in 2024 due to its quality assets, although the Foreign Investor Review Board permission is a potential obstacle to overseas bidders.
Spencer says to watch speculative rare earths junior Meteoric Resources. It boasts a $390 million market cap thanks to tenements in Brazil and Western Australia, with the stock up from 1¢ to 20¢ in 12 months.
Gold’s record-breaking run may stoke takeover activity as prices surged to a record $US2151 an ounce on Monday.
Sala Tenna also tips ASX-listed explorer De Grey Mining.
“We struggle to see how De Grey doesn’t get a takeover,” he says. “It’s a big comment to make, but it’s the third-largest undeveloped gold project in the world, and you couldn’t get a better location or jurisdiction to develop a gold project than near Port Hedland in the Pilbara.
“Remember, De Grey is probably going to be 20 million ounces [of gold] by the time they’ve finished drilling and the majors have got to replenish their resource base.”
The fund manager says Australia’s third-largest domestic producer Regis Resources could also catch a bid in 2024, just like Newcrest in 2022.
“The two big boys, Northern Star and Evolution, are trading on two to three times the [profit] multiples of Regis, so if you want to grow your ounces in Australia you’ve got to look at Regis,” he says.
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