Home > Mergers & Acquisitions > Jinchuan to Pay $419 Million for Canadian Developer of Tibet Mine

Jinchuan to Pay $419 Million for Canadian Developer of Tibet Mine

September 20, 2010

“Jinchuan Group Ltd. is offering to buy Continental Minerals Corp. for about 432 million Canadian dollars (US$419 million), marking the latest move in China’s buying spree in the global mining sector. Jinchuan would acquire the Vancouver-based mining company—whose board is recommending the deal—at C$2.60 each, representing about an 18% premium to the stock’s average trading price over the last 30 days.

Continental is a junior miner active in Asia, focusing currently on the Xietongmen copper-gold property in Tibet. Jinchuan is an integrated company engaged in mining, concentrating, metallurgy and chemical engineering. It is the largest producer of nickel and cobalt in China.”

Source: Wall Street Journal, September 18, 2010

Observations:

  • Continental Minerals is in the permitting process to obtain mining licenses to start developing a mine that will extract 116 million pounds of copper and 190 thousand ounces of gold in 14 years in the deposit discovered in 2005. Another deposit, named Newtongmen, is in the exploration phase.
  • Jinchuan has been planning to raise money on the stock market for many years. Current plans are to have an IPO in 2011 in order to raise money for expansion and potential further acquisitions.

Implications:

  • The 18% premium offered by Jinchuan indicates that limited synergies are expected to be achieved. Jinchuan is mainly producing nickel and cobalt, while the Xietongmen mine will produce copper and gold, limiting management, trading and processing benefits of the expansion. The company tries to increase its copper output, currently being the 4th largest copper producer of China.
  • It is unlikely that any companies without gold/copper interests in China are willing to bid more for Continental Minerals. High transportation costs from Tibet will force the buyer to process the ore near the mine and customers will mainly be in mainland China.

©2010 | Wilfred Visser | thebusinessofmining.com

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