In a previous update we concluded M&A activity was picking up in the mining space. A recent piece of research pointed to the fact over 60% of all M&A activity in mining happened in the critical metals arena. Only a few years ago, the majority of the buyouts were precious metals related.
It has affected our portfolio in a very positive way since three of our lithium positions have been the subject of takeover proposals since September. Around 15% of our portfolio is lithium-related, while the broader critical metal space is around 40% of our AUM. This includes copper and nickel as well.
First, in September, Alpha Lithium accepted a bid for all shares by Tecpetrol. Then on October 18th, Chilean state-run Codelco announced a $385 million offer for Australian listed Lithium Power International (LPI) . It was the first lithium deal for the world's largest copper producer, which is switching to critical materials essential for the energy transition, as well.
And this week, Australian-listed Azure Minerals Limited (AZS), responsible for one of the largest lithium discoveries worldwide, announced an even bigger deal. Lithium producer SQM acquires Azure for more than $1 billion. Shares in Azure gained an immediate 43%. That was another big win for the Commodity Discovery Fund, because Azure Minerals is our second largest position, gaining over 1400% YTD, and now valued 4.2 million euro. So, this is our third lithium buyout in just two months and takeover #82 since the inception of our fund in 2008.
The Azure deal is a perfect demonstration world-class discoveries will be bought out at the highest price, even in a commodity bear market. A recent study has shown takeout prices, being done in a bull or bear market, differ greatly. In a commodity bear market the average acquisition price is only 8% of resource value (metals in the ground), while this jumps to 36% in a bull market.
We seem to be nearing the end of a long bear market in commodities. Valuations are still near 100-year lows.
Since 2022 lithium prices have more than halved, after a huge run in 2021. Analysts expect the Lithium M&A hype to continue. The lithium market is growing from a yearly $5 billion to over $100 billion in just 15 years. In 2023 the physical lithium market is expected to be around 50% of the value of the world’s copper market, because of the high demand for EV batteries.
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