Minmetals offers US$6.5b in takeover bid for Equinox
Minmetals Resources, the biggest metals trading firm in China, has offered US$6.5 billion in an all-cash takeover of Equinox Minerals.
That would make the deal the fourth largest out-bound merger and acquisition bid, according to Thomas Reuters data. The bid followed Minmetals Resources' acquisition of Minerals and Metals Group (MMG) at the end of 2010 for US$1.85 billion. MMG is a producer of zinc, copper, lead, gold and silver.
Minmetals Resources offered C$7 (HK$56) per share for Equinox, which closed at C$5.71 in Toronto on Friday. The company, listed both in Australia and Canada, boasts copper assets in Zambia and Saudi Arabia.
The offer was made on the condition that Equinox would abort its bid to acquire Canadian company Lundin at C$4.7 billion.
Andrew Michelmore, executive director and chief executive officer of Minmetals Resources, said the company had filed applications for regulatory approvals from the mainland and Australian governments.
Michelmore said he was confident that the bid would be completed by the end of the year, and noted that most of the mining assets of Equinox were off-shore. He said that the strong ties between the mainland government and the governments in Saudi Arabia and Zambia would also be an advantage in the deal.
In 2009, Minmetals Resources' bid to acquire Oz Minerals, an Australian mining company, was blocked by Australian Treasurer Wayne Swan because it included the Prominent Hill mine in South Australia. But the deal was later given the green light with China Minmetals Corp taking over most assets of Oz Minerals for about US$1.4 billion.
The funding deal of the bid for Equinox would be financed by mainland banks and financial institutions, Michelmore said.
'We have access to China's financial institution with security of long-term patient capital,' he said. Minmetals Resources' major share holder is state-owned China Minmetals Corporation. 'Because of the parent company guarantee we can secure attractive interest rates.
'We believe that we are able to gear the company to a higher of debt plus equity ratio than a standard western company with syndicated loans with various banks would be able to do.'
He declined to disclose the details of the financial arrangement of cash, bank debts and shares, but stressed that Minmetals Resources had a strong cash flow.
The company recorded US$409.4 million of net profit, and boasted a free cash flow of US$496.3 million in 2010, according to its annual report. Net debt increased from US$752.9 million to US$1.55 billion, as gearing ratio increased from 0.6 to 2.9.
Analysts said the copper assets of Equinox should further strengthen Minmetals Resources' portfolio, but noted that the copper price was already at its record high. It traded at US$9343.25 per tonne on the London Metal Exchange, compared with as low as US$8048.5 per tonne in April 2010.
Equinox's Australian shares rose A$1.640 to A$7.35, while shares of Minmetals Resources climbed 16 HK cents to HK$6.72.
