HONG KONG - All that glitters may not be gold: it might be copper. Rising prices have filled coffers for bullion miners of late. Some, like $31 billion Barrick Gold, suggest future growth may come from its more modest cousin. Convincing investors and finding suitable targets will be the hard part.

Gold miners are in a bright spot. With low interest rates and slowing economic growth, the price of the safe-haven metal is up 15% this year. In August, it crossed $1,500 per ounce, a level last seen in 2013. Margins are healthy too: all-in costs were around $833 per ounce in the first half, according to Refinitiv GFMS. As a result, in the most recent quarter, Barrick generated just over $500 million in free cash flow.

The question is what to do with the windfall, when production is flat. Exploration has been promising, but slow. Despite a deal flurry, including Zijin Mining’s $1 billion bid for Continental Gold, buying rival producers is difficult to pull off, and synergies are limited. Barrick’s venture with neighbour Newmont in Nevada is a rare exception.

That’s why Barrick boss Mark Bristow is eyeing the red metal. It occurs naturally with gold, so producers usually have some anyway. Processing is not so different. Copper prices, meanwhile, sank in September despite strong long-term prospects for a key ingredient in a greener economy.

Unfortunately, precedent is poor. Barrick, forcefully led by Peter Munk, beat off other suitors in 2011 to buy copper miner Equinox for C$7.3 billion, loading up with debt just as gold peaked. In the end, the group wrote off billions. Too much copper also risks diluting the premium at which gold miners trade, relative to the net present value of projected cash flows.

A bigger problem is that the metal is on every shopping list, from Chinese giants to Rio Tinto . Potential targets, such as $16 billion Freeport-McMoRan, will not go cheaply. A risky but less hefty bet may be copper projects, particularly those overlooked by more squeamish diggers, say in Congo or Russia. Winning support for such buccaneering moves will be the challenge.

CONTEXT NEWS

- Barrick Gold Chief Executive Mark Bristow said in a Financial Times interview on Nov. 10 that he considered copper “strategic” and would seek opportunities to expand the company’s exposure, through exploration or deals.

- Spot gold is up 15% so far this year, trading at around $1,475 per ounce on Dec. 5. The price hit a six-and-a-half year high of $1,557 on Sept. 4.

(Editing by Una Galani and Katrina Hamlin)

© Reuters News 2019