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EMR Capital tips mining deals to continue in 2018

James Thomson
James ThomsonColumnist

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The chief executive of mining private equity group EMR Capital expects the next two years will continue to provide rich pickings for deals, as the big resources groups continue to clean up their portfolios and sell non-core assets.

EMR chief Jason Chang closed a $US97.1 million ($125 million) deal to buy an 80 per cent stake in a copper mine in Zambia on December 28, and remains on the hunt for further deals in the sought-after commodity.

The purchase of the Lubambe copper mine means EMR has four operating mines, including the Golden Grove copper and zinc mine in Queensland, the Capricorn Copper mine in Queensland, and the Martabe gold and silver mine in Indonesia.

Copper demand is likely to be pushed higher by economic growth and hot trends such as electric vehicles.  Oliver Bunic

It also has four development projects, including a copper asset in Chile, a coking coal development in Britain, and two in potash projects in Utah.

While Mr Chang said EMR would be focused on building up the production of its four operational mines, the fund would continue to hunt new deals.

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"We feel that in the next 12 to 24 months there are going to be good opportunities," he told The Australian Financial Review.

Simplify and streamline

While stronger-than-expected commodity prices had allowed the world's biggest miners to pay down debt and strengthen their balance sheets, they continued to look to simplify and streamline their asset portfolios, Mr Chang said.

"I think you'll still see some of the majors divesting non-core assets because they don't match up with their main ambitions.

"We are still chasing copper, we are still chasing gold, we are still chasing coking coal [and] we are still chasing potash."

He emphasised that EMR was focused on finding assets that it could improve by increasing and optimising production.

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"That's how we are going to get our value, not on commodity prices. We have to be able to improve the value of the assets," Mr Chang said.

The Zambian deal is a case in point.

Big plans to optimise

Lubambe is an existing underground high-grade copper mine and a development project, with a total resource base of about 9.2 million tonnes of contained copper metal.

The mine produces close to 20,000 tonnes of copper concentrate per annum, and EMR has big plans to optimise operations and ramp up annual production over time.

Mr Chang said the outlook for copper was strong, driven not only by hot trends such as the growth in electric vehicles, but also by improving economic growth, such as in the United States.

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"All of that's going to mean more copper demand."

He said EMR was comfortable moving into Africa and impressed with the 20 per cent owner of the mine, ZCCCM investments, which is majority owned by the Zambian government.

"They're very aligned and very commercial, so we're delighted to partner with them on this transaction.

"We are happy going to certain countries in Africa, and Zambia is one of those at the top of the list.

"The country survives on copper at the end of the day and if you are into copper, you just can't ignore the copper belt in Zambia."

Production cuts

The completion of the deal came as the copper price hit $US7259 a tonne in London on Wednesday night, the highest since January 2014.

The price, which rose 30 per cent across 2017, was pushed higher last week by reports that China's largest copper producer, Jiangxi Copper Co, was told to cut production for at least a week due to concerns about pollution levels.

China is in the midst of a crackdown on pollution and has shut steel production in 28 cities for the winter months.

James Thomson is senior Chanticleer columnist based in Melbourne. He was the Companies editor and editor of BRW Magazine. Connect with James on Twitter. Email James at j.thomson@afr.com

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