Barry FitzGerald: Been there, done that, Prospect could be the next ASX M&A target (again)
It's all in the timing. Just ask Prospect Resources (ASX:PSC), which cashed in its African lithium chips in early 2022 just ahead of the crash in lithium prices which began to take hold later that year.
It was a big cash out too.
Prospect picked up the Arcadia lithium project on the outskirts of Harare in Zimbabwe in 2016. At the time, Prospect had a $6 million market cap.
Prospect went on to spend $84m by 2022 to turn the initial discovery in to a shovel ready project when it went looking for development funding. During that process China's Huayou Cobalt had a better idea – let us buy the thing.
Prospect was happy to oblige and pocketed $US378m for its 87% share of Arcadia.
The Chinese wasted no time getting Arcadia into production, ironically adding to the rising lithium glut that sent prices crashing from early 2023.
It's fair to suggest that had Prospect been looking for a buyer for Arcadia come late 2023, it would have struggled to find one. And it certainly would not have got anything like the $US378 Huayou Cobalt handed over.
Prospect banked the cheque and followed up in August 2022 with a A$443 million distribution to shareholders of 96c a share that left A$33 million in the kitty for its team of African resources specialists to find the next opportunity for the company.
Zambian copper belt
The team landed on the advanced Mumbezhi copper project in the Zambian copper belt. While advanced all right, disputed ownership had been holding the project back. Prospect sorted that out and emerged with 85% in April last year.
It could be said that Prospect has set out to do in Zambian copper what it was able to achieve in Zimbabwean lithium.
Mumbezhi is on the big side of things already, with Prospect releasing its maiden resource estimate of 107.2Mt at 0.5% copper for 514,000t of copper in March this year. It also announced a compliant 'exploration target' of 420Mt to 1.05 billion tonnes (1.68Mt to 4.2Mt of copper), including the existing resource.
That should have been enough in itself for the local market to sit up and pay attention, But there was only a little bump in the share price.
Things changed on April 14 though when the C$20 billion international copper heavyweight First Quantum Minerals arrived on the scene.
The Canadian-based miner put its hand up for a 15% placement in Prospect at a cost of $15.2 million or 15c a share – a 35% premium to Prospect's previous closing price at the time of 11c.
First Quantum also became a technical adviser on Mumbezhi. It knows all there is to know about Zambian copper as it has been operating in the country for more than 25 years, producing copper, gold and nickel.
Its current operations include the Kansanshi copper/gold mine and smelter and the Sentinel copper mine which produced more than 400,000t of copper combined in 2024. Sentinel is 20km to the north-west of Mumbezhi in a similar geological setting.
Sentinel is a massive mining and processing operation which delivers economies of scale to make the 0.51% grade (2024) highly profitable. Its total costs in 2024 were $US2.85/lb of copper.
Since the First Quantum placement, Prospect shares have marched higher to 18.7c for a market cap of $131 million. Prospect is now busy with a drilling program to grow the resource towards the world-scale levels implied by the exploration target, with advice from First Quantum.
First Quantum agreed to an18-month standstill agreement on it acquiring or disposing Prospect shares, subject to customary exceptions. The market nevertheless now sees Prospect – or at least Mumbezhi itself – as an obvious potential acquisition for First Quantum.
Copper had a massive week after the announcement of a planned 50% tariff on imports into the US by President Donald Trump, with US market prices surging to over US$5.50/lb.
At Stockhead, we tell it like it is. While Prospect Resources is a Stockhead advertiser, it did not sponsor this article.
The views, information, or opinions expressed in this article are solely those of the columnist and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
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