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Vale drops $1.1bn bid to purchase Metorex
“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
Jinchuan to Pay $419 Million for Canadian Developer of Tibet Mine
“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
China seals African platinum deal
“China is set to make its second largest investment in Africa outside the energy sector by ploughing $877m into South Africa’s platinum industry. The agreement signed last week adds intensity to China’s ambitious drive to sustain its economic boom by securing Africa’s natural resources.
For the first time, Beijing will take a direct stake in the continent’s platinum reserves, the majority of which are in South Africa. Jinchuan, a Chinese state-owned mining company, is to acquire a 51 per cent stake in Wesizwe, a junior South African platinum developer, for $227m (€185m, £158m).
The China Development Bank will then raise another $650m in project finance to develop its flagship Frischgewaagd-Ledig platinum project, near Rustenburg, west of Pretoria. After the mine is built, Jinchuan will take all of its platinum produced, according to a long-term supply agreement.”
Source: Financial Times, May 26 2010
Observations:
- Platinum and paladium are mainly used as catalysts in the car industry and in jewellery. Over 75% of the total production of platinum is coming from South Africa.
- After the investments by Rio Tinto, Chinalco, Vale and CIF in Guinea and Niger last month, this deal signifies the next billion of FDI in the mining industry in Africa.
Implications:
- The involvement of the China Development Bank in this project is special. It increases the buying power of the Chinese (mostly state-owned or controlled) miners even further, accelerating the Chinese control over Africa’s natural resources.
- Demand for precious & rare metals is increasing as many of them are used in high-tech applications. A significant part of the rare metal resources is located in Asia, but China will still increase its efforts of securing access over deposits over-seas. As the diversified miners do not really have an incentive to join this race, high-tech producers from the western world should be looking for ways to secure their supplies of critical inputs in the long term.
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