Over the last 2–3 years, the large mining conglomerates have benefited from higher prices and juicy revenues…
While that’s proved a gift for shareholders in the form of handsome double-digit dividends, it does point toward some worrying trends in the years ahead.
You see, mines are a depleting asset.
As companies ramp up production on the back of rising commodity prices and revenue pours in…outsized dividends are one of the benefits.
But without new discovery or investment into new projects, future output DRIES up.
That spells trouble for majors attempting to maintain output at their ageing operations…many of which were discovered several decades ago.
But the apathetic actions of mining conglomerates present an enormous opportunity for the new developers holding the next generation of deposits.
It’s why being selective in this coming age of resource scarcity remains critical.
New developers will remain in the cross hairs for mining conglomerates looking to replace depleting reserves…
But acquisitions will come at a premium.
In fact, our Diggers and Drillers portfolio has been on the receiving end of a takeover bid from one major already…
Enter…Mincor Resources [ASX:MCR]
In a repeat of the Oz Minerals deal, we now have a similar situation playing out for Mincor.
MCR holds a key nickel asset in the Kambalda region of Western Australia and is now subject to a $760 million takeover offer from Wyloo Metals.
Wyloo is a private company owned by Australia’s mining magnate, Andrew Forrest.
It already holds several key critical metal projects in Australia and overseas.
But Wyloo is keen to get its hands on Mincor’s assets for several key reasons…
Junior companies holding nickel assets are rare…the major conglomerates including BHP, Glencore, and Vale dominate the extraction of this commodity.
However, Mincor is a mid-cap miner tied exclusively to nickel production…
That means investors can gain maximum upside from higher nickel prices by holding this stock.
It’s ONE of the reasons I recommended Mincor to my subscribers earlier this year.
It’s also a key reason Wyloo is making a bid for this company.
However, there are some other interesting dynamics that made Mincor a strategic investment…
Right now, Russia is a major global supplier of the metal.
In fact, the country holds the world’s largest nickel mine located on the Kola Peninsula near the Norwegian and Finnish borders.
The operator, known as Nornickel Kola Division, extracts around 172,000 tonnes per annum.
That kind of output trumps the world’s second-largest mine, Nickel West, which generates around 75,000 tonnes for its owner BHP in Western Australia.
See for yourself below:
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| Source: Mining Intelligence |
But Russia’s invasion of Ukraine last year has made the supply outlook increasingly vulnerable.
So far, US and European nations have NOT added Russian nickel to its list of embargoes…
To me, that’s a warning sign.
The West is concerned about FUTURE global supply.
While exempting Russian nickel from embargoes has helped stabilise the market, it doesn’t guarantee future stability…
That’s because the market SUPPLIER holds the power…Russia.
Nickel is a key weapon in Putin’s trade arsenal as he looks to recapture power in this trade struggle.
That’s where companies who are able to offer alternative supplies are set to benefit.
Scarcity, a breakdown in global trade, and enormous projected demand points toward a very bright future for stocks like Mincor.
Yet Mincor stands out as a lone wolf among nickel producers…there are very few pure plays available.
All key reasons Forrest’s Wyloo Metals made a bid for the company last month.
Perfectly timed for a major low in the market.
But in a similar vein to Oz Minerals, does this deal stack up in the best interest for shareholders?
According to MCR’s management team, it does.
In my opinion, that grossly undersells the potential of this company.
Wyloo’s offer price is not even half of where the share price traded 12 months prior.
Yes, a clause in Mincor’s offtake agreement with mining major BHP has taken some of the shine off the company.
Without digging too deep into the details of the contract, BHP required a specific blending ratio between nickel and arsenic.
As if by chance, BHP acted on this clause earlier this month, rejecting MCR’s latest shipment.
The move and subsequent failure to reach a deal on future shipments have triggered Mincor to withdraw its production guidance for shipments to BHP.
So how does this finish for Mincor?
It seems the stars have aligned for Andrew Forrest…Wyloo looks set to pounce on MCR after BHP strongarmed the company and dampened its short-term outlook.
Right in the heart of a takeover bid.
Given BHP’s ‘untimely’ move against Mincor, it begs the question: What are BHP’s motives?
But what this deal and others like it demonstrate is this…
The titans in the industry are hungry for acquisition.
They are using market pullbacks to capitalise on opportunities…attempting to pick up assets for a steal while celebrating in the windfalls set to come as commodities prices break into new all-time highs.
As an investor, you should be looking ahead and using this as a clear signal for what comes next…
Holding quality high-grade assets tied to critical metals ensures mining executives won’t be the only ones set to reap enormous fortunes from the mineral wealth sitting below YOUR feet.
The majors know what is at stake here.
Higher prices will mean little for the likes of Glencore, Rio Tinto, or BHP if they can’t resupply their ageing mines.
You also can’t find a replacement deposit in a snap.
Prepare your portfolio for a fierce bidding war as the mining conglomerates try to get their hands on the next generation of deposits.
That’s what we are doing at Diggers and Drillers…
Adding small to medium mid-cap mining stocks holding large, high-grade deposits.
It’s these PRIZED assets that sit in the crosshairs of the world’s largest mining stocks.
But using my industry experience and geological knowledge, I’ve been able to tell you about some of the very best projects held by mid-cap juniors.
Most of these stocks are still a BUY recommendation in the Diggers and Drillers portfolio.
You can access all the details here.
Until next time, have a great week.
Regards,
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James Cooper,
Editor, Fat Tail Commodities
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