Rio Tinto invests in early stage copper project amidst next ‘M&A cycle’

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Rio Tinto Ltd. has inked a deal to obtain up to a 60-per-cent interest in a copper project owned by Toronto-based McEwen Copper Inc., just a day after it signed an agreement to acquire two-thirds of the Oyu Tolgoi mine in Mongolia.

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Rio Tinto can acquire 60 per cent of McEwen’s Elder Creek project in Nevada by investing US$18 million over the next seven years in the property.

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“Elder Creek is early stage, it has indications of copper mineralization in some deep drill holes, but no economic deposit has been discovered yet,” Stefan Spears, a McEwen spokesperson, said. “In order to realize its potential, it needs a significant financial investment, so we’re pleased to have Rio Tinto using their deep pockets to advance the work.”

Spears added that McEwen is currently focused on developing its Los Azules copper project in Argentina, which he described as the world’s eighth-largest undeveloped copper deposit.

Elder Creek is “simply not on the same planet in terms of value and focus,” and Rio’s investment is an opportunity to “get some serious money spent on exploration,” he said, adding the project was “well placed in a gold-copper district known as the Battle Mountain-Eureka Trend.”

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Rio Tinto announced the investment a day after it entered a US$3.3-billion deal with Turquoise Hill Resources Ltd. to acquire the shares of the Montreal-based company it doesn’t already own, thereby increasing its stake in the Oyu Tolgoi copper mine. Shareholders of both Rio and Turquoise are expected to vote on the deal later this year.

The recent push by some of the world’s largest miners, such as Rio Tinto and BHP Group Ltd., to buy projects that produce the metals required to meet decarbonization goals is likely to continue, according to a report by the Bank of Nova Scotia.

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Last month, Adelaide-based Oz Minerals Ltd., which specializes in copper, rejected an offer by BHP to acquire all its shares and described the offer as undervalued.

“Cashed-up miners, limited internal growth opportunities, shareholder pressure to rebalance asset portfolios towards ESG friendly commodities, a relatively unattractive current risk-reward profile for constructing larger scale projects, and discounted market valuations for … assets, appears to have set the stage for the next mining M&A cycle,” the Scotiabank report said.

It also said the current weakness in the market has “opened the door for potential opportunistic bids by larger companies and that investors should “better understand how valuable these assets truly are, especially in a decarbonizing world with excellent long-term demand drivers and few sources of obvious supply growth.”

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