Chinese miner in premium bid for African foothold

PUBLISHED : Saturday, 01 October, 2011, 12:00am
UPDATED : Saturday, 01 October, 2011, 12:00am


Minmetals Resources, an overseas non-ferrous metals mining unit of China's largest metals trader China Minmetals Non-Ferrous Metals, has offered to pay a 30 per cent premium to take over a copper miner with assets in the Republic of Congo for C$1.33 billion (HK$10.04 billion), to gain a foothold to access Africa's rich resources.

The company has offered to pay shareholders of Toronto and Sydney-listed Anvil Mining C$8 per share, 30 per cent more than the average share price in the previous 20 trading days.

Anvil's board has recommended its shareholders accept the offer, Minmetals Resources said in a statement, adding Anvil shareholders holding over a combined 40 per cent stake have already agreed to accept.

The deal will be financed by cash and a 12-month loan offered by China Minmetals. Minmetals Resources had US$431 million of cash and a net debt-to-shareholders' equity ratio of 49 per cent on June 30.

The offer came five months after the company's C$6.3 bid for copper miner Equinox Minerals was trumped by Canadian miner Barrick Gold's C$7.3 billion offer. Equinox has copper assets in Zambia - just southwest of Congo in central Africa.

It also came after global mining firms saw their market valuation plunge amid worries the global economy may slip back into recession for the second time in three years. Minmetals Resources lost 49 per cent of its valuation in the past four months, while Anvil lost 5 per cent and the Hang Seng Index slid 26 per cent.

Minmetals Resources chief financial officer David Lamont said the financial market turbulence, which led some firms to review their finances and consider selling assets, was not the main driver for its offer.

'This [acquisition in the Congo-Zambia copper belt] is something we have been looking at for a number of years, and we look at the medium to long-term asset value,' he said, adding it is optimistic of copper's long- term demand and price despite the short-term volatility. London's three-month copper futures fell 27 per cent in the past two months.

Anvil's main asset is the 95 per cent-owned Kinsevere mine, which began production in 2007. Output of copper concentrate - pre-smelted copper - was 5,939 tonnes in this year's first-half. Anvil has recently completed an expansion that raised its annual output capacity to 60,000 tonnes. Kinsevere is estimated to have 1.07 million tonnes of copper resources at last year's end.

The acquisition of Anvil would raise Minmetals Resources' copper reserves by 75 per cent.

The offer price is 4.2 times Anvil's estimated market consensus earnings per share for next year, compared to 3.5 times of Minmetals Resources, according to Thomson Reuters.

BOC International analyst Robin Tsui said the offer's premium was fair, while MF Global analyst Helen Wang is concerned about a lack of information on logistics infrastructure to ship copper out of land-locked Congo. A spokesman for Minmetals Resources said a third-party trading firm bought Kinsevere's output and assumed the responsibility and risks to send it to the market. He would not name the firm.

A class action has been filed by Congolese advocacy groups against Anvil, alleging it has a role in Congo's military suppression of rebels that resulted in a massacre in 2004. The company denies all involvement.