BHP’s $40 billion attempt to acquire Anglo American with its highly desirable South American copper assets might look doomed to fail at the first attempt but that could actually be what BHP wants to happen.

The complex share-swap offer from BHP which required Anglo to hive off its South African copper and platinum interests was always a long shot, but the next move by Anglo, a radical restructure/breakup, was predictable as it had been in the works for months.

What happens next in the BHP v Anglo battle of heavyweight miners will make headlines while the more important message of “buy v build” resonates through the resources sector, which is certainly recognised by big miners which are on the prowl.

Also, driving what could become a merger and acquisition (M&A) tidal wave is the prospect of higher metal prices as the global economy recovers and the lingering effect of high inflation keeps construction costs high.

Cost inflation will be an ongoing problem, especially in Australia, following a well-received but potentially inflationary federal budget in a week when the local market, as measured by the all ordinaries index, moved into record territory above 8160 points.

Incentives for critical metals were a highlight of the budget with the government sending a clear message that it recognises the importance of mining, though the more significant move was encouragement of gas exploration and development because the fuel is a key ingredient in mineral processing.

Copper, which has emerged as the most important commodity in efforts to “decarbonise” the environment, was the star attraction of the week for investors with a price hovering around an all-time high of US$5 a pound, while clearing that bar on the futures market.

The latest rise in the copper price unleashed the bulls, led by Goldman Sachs with its prediction of “demand rationing” and a future copper price of US$6.80/lb, and perhaps a lot higher as stockpiles of the metal disappear and mines struggle to fill existing orders.

Most local copper stocks performed well this week, led by 29Metal which added 5c (11%) to 50c as it continues to recover from multiple flooding events.

Caravel, which is exploring a potentially big copper deposit near Moora in WA’s wheatbelt, continued its recovery which started in March when the stock was trading at 14c, closing yesterday at 25c, close to a double-your-money event.

Aeris, one of the more closely followed local copper producers, rose by 6.5c (26%) to 32c. Emerging WA-focused developer Anax put on 1.3c (30%) to 5.6c, while over-heated investor favorite Sandfire slipped 6c lower to $9.80, still well up on its opening sales in January at $7.37.

Citi analysts said the surging copper price had trapped short-sellers, forcing them to buy back loss making trades as the price of copper on the Comex futures market hit US5.18/lb, a record premium over the London Metal Exchange price of US$4.97/lb.

The current situation might be unsustainable, Citi said, because the futures trades reflect “panicked short covering and continued momentum buying”.

There were also warning words from UBS on the Australian Government budget, especially over the critical metals production tax credit which required a more detailed explanation into how it might work in detail such as what processing costs were eligible for the credit and the overlooked issue of copper not qualifying because it had not been deemed critical.

Nickel, which is on the critical list, could emerge as a significant winner thanks to a government helping hand, along with news that Anglo American plans to mothball a mine as part of its breakup, and riots on the nickel-rich French island of New Caledonia.

On the metal market this week, nickel traded up to US$19,600 a tonne, meaning it has risen 10.4% in a month and is within touching distance of the US$20,000/t which is the base position for BHP keeping its Nickel West business operating.

Gold, as mentioned earlier, had another solid week thanks to the latest outbreak of optimism about interest rate cuts following a small slide in the U.S. inflation rate from 3.5% to 3.4%, enough to spark a US$30 an ounce rise in the gold price to US$2393/oz, close to the all-time high of US$2401/oz reached four weeks ago.

Silver, also known as the poor man’s gold, produced the biggest winner among precious metal stocks with a strong showing from newly listed Sun Silver, which saw its 20c shares rocket up to 58c, a 190% return for stags.

Key asset in Sun Silver’s portfolio is the Maverick Springs silver/gold project in the U.S. with its 292 million ounce mineral resource at a silver equivalent of 72.4 grams a tonne.

Gold enthusiasts such as John Hathaway from Canada’s Sprott Asset Management reckon gold is on a roll towards a target of up to US$3000/oz, with the next upward drive coming from investors in Europe and the U.S. who have lagged well behind Asian buying.

Local gold stocks took advantage of the higher price with a series of capital raisings rolled out, led by Pantoro pulling in $100 million to fund growth projects with the stock adding 1c to 8.7c despite the extra shares on issue, Kingston raised $4.66 million and Ausgold borrowed $3 million.

Other moves by gold stocks included:

  • Catalyst up 6c to 89c after reporting drill results as high as to 2.9 grams a tonne over 38 metres close to the surface.
  • Black Cat also rose by 6c to 34c after releasing an upbeat report on the Coyote project in the far north of WA.
  • De Grey lost 7.5c to $1.18 as investors absorbed the effect of its $600 million capital raise. Macquarie reckons the stock will bounce back to $1.70, and
  • Sunstone added 0.1c to 1.1c after reporting thick near-surface copper and gold assays at its El Palmar project in Ecuador, including 40.4m at 0.86g/t and 0.05% copper.

Lithium stocks had a mixed week thanks largely to investor interest being diverted to copper and gold and the ever-closer interest rate correction which was accelerated locally by an increase in the national unemployment rate from 3.9% to 4.1%.

Arcadium, which has cemented a spot as one of the world’s major producers of the battery metal. lost 41c to $6.90 even as Citi said buy and set a price target of $9.40.

Patriot Battery Metals slipped 5c lower to 86c despite another whopping drill result at its Corvette project in Canada with a best hit of 122.5m at 1.42% lithium. Pilbara minerals was also weaker, down 22c at $3.98 while Errawarra Resources added 3c to 17c after reporting a stacked pegmatite swarm at its Andover West project in WA.

Other news and market moves of interest this week included:

  • Battery Age Materials adding 2.5c to 13c after announcing an increase in its interest in the Bleiberg zinc/germanium project in Austria to 51%.
  • Hastings Technology Metals slipped 0.5c lower to 28c after the departure of chief executive Paul Brown. A year ago the rare earth project developer was trading at $2.16.
  • Sovereign Metals rose by 1.5c to 53c after announcing the production of spherical purified graphite from is Kasiya project in Malawi.
  • Power Minerals added 3c to 14c after expanding its portfolio of niobium and rare earth exploration tenements in WA’s West Arunta region.
  • Firebird Metals edged up by 0.5c to 21c as it moved closer to developing a high purity manganese sulphate plant in China, and
  • Fortescue Metals rose by 11c to $26.34 even as the iron ore price eased $1 to US$116/t with government support for hydrogen projects sparking fresh interest in the stock.