Home > Mergers & Acquisitions > Vale drops $1.1bn bid to purchase Metorex

Vale drops $1.1bn bid to purchase Metorex

July 15, 2011

“Brazil’s Vale has dropped its $1.1bn offer for Metorex, a central African copper and cobalt miner, clearing the way for China’s Jinchuan Group to complete a $1.4bn takeover that would establish the state-owned miner in risky frontier markets for metals.

The move came a week after Jinchuan, one of China’s largest mining companies, disrupted its Brazilian rival’s plans by offering R8.90 per share for Metorex. Metorex, however, has not yet recommended Jinchuan’s higher offer to shareholders. Its board will “convene shortly to consider its position with respect to the Vale offer and the Jinchuan offer”, the South Africa-based miner said.

‘Africa is a key focus for our company,’ a Jinchuan executive told the Financial Times. He said it aimed to expand production of copper and cobalt, two industrial metals with rising demand being driven by Chinese consumption.”

Source: Financial Times, July 11 2011

Observations:

  • Metorex is a South African copper and cobalt miner with operations in Zambia and Congo. The company’s board has recommended the shareholders to accept Jinchuan’s offer, paving the way for the takeover of the company. Vale withdrew its inferior bid quoting capital allocation rigor as the reason for not doing a higher bid.
  • Jinchuan is a government owned non-ferrous metals miner. The company has been rumoured to plan an IPO for many years. End of 2010 the company announced a small acquisition in South African platinum mining and furthermore the company bought a Canadian developer of a mine in Tibet.

Implications:

  • The acquisition by Jinchuan is an example of Chinese company’s high willingness to pay for foreign assets. The project is certainly not worth more to Jinchuan than to Vale, which owns assets nearby which could cause synergies. However, Chinese companies are willing to pay a high premium to grow internationally, positioning themselves as state champion in a consolidating industry.

©2011 | Wilfred Visser | thebusinessofmining.com

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