Monday, April 04, 2011

Copper is on Fire: Minmetals Offers to Acquire Equinox for $6.5 Billion - Lundin Mining is Next, czx.v, tnr.v, sgc.v, tck, bhp, fcx, rio,,,,,,,,

  What do you do when you have lots of dollars which are losing value by the day, hungry for growth population and you need to maintain a tricky status quo? You are going shopping. But not for US Treasuries any more after PIMCO's Bill Gross has dumped all his holdings. And if you happen to be China you are going shopping for Copper or Oil and Lithium will be next on your list after you control Rare Earths market. We have our Catalyst in action now.
  Now Lundin Mining with its stake in Tenke Fungurume can expect proper bids above CAD 10.0. Copper is set on fire in M&A space with this Chinese bid. Destiny of Big Copper project in Argentina - Los Azules and companies involved TNR Gold and Minera Andes will be even more interesting now.
  We have also other companies to watch now in our Copper squad: Revett Minerals, Copper Fox Metals, Canada Zinc Metals, NGeX resources, Conerstone Capital Resources, Sunridge Gold and others.


By Elisabeth Behrmann and Shani Raja - Apr 4

Minmetals Resources Ltd. (1208), the Hong Kong unit of China’s biggest metals trader, made an unsolicited offer of about C$6.3 billion ($6.5 billion) in cash for Equinox Minerals Ltd. (EQN), to gain control of Africa’s largest copper mine.

Minmetals bid C$7 a share, 23 percent more than Perth-based Equinox’s closing price in Toronto on April 1, the Hong Kong- based company said today in a statement. The Chinese-funded bid depends on Equinox, whose shares rose 28 percent in Sydney today, dropping its C$4.4 billion offer for Canada’s Lundin Mining Corp. (LUN)

The deal, China’s biggest minerals takeover, would give Minmetals Chief Executive Officer Andrew Michelmore control of the Lumwana copper mine in Zambia and Saudi Arabia’s biggest copper deposit. Mining companies are competing to secure assets after a dearth of new global projects and demand from China drove copper prices to a record this year.

“The Minmetals bid could prompt another interested buyer to put forward an alternative proposal,” said Angus Gluskie, who manages about $350 million at White Funds Management Pty. “An improving global economic outlook is giving buyers the confidence that prices should remain firm for some time.”

Minmetals, or MMG, a unit of state-owned China Minmetals Group, rose 0.5 percent to HK$6.59 at 11:25 a.m. in Hong Kong trading, giving it a market value of HK$19.6 billion ($2.5 billion). Equinox gained A$1.58 to A$7.29 (C$7.30) at 1:22 p.m. in Sydney trading, the highest since June 22, 2004. Lundin increased 3.5 percent to C$8.33 at the April 1 close of trading on the Toronto stock Exchange.

Equinox’s board will meet to consider the offer, the company said in a separate statement. Minmetals is being advised by Deutsche Bank AG and Macquarie Capital Advisors.

C$8 Bid?

“There isn’t much room to move” for any rival bidders, Anna Kassianos, analyst at Austock Securities Ltd., said in an e-mailed note, citing a possible “ceiling price” of C$8 a share. The move by Chinese state-owned Minmetals will be supported by the Zambian government, given the already strong links between Zambia and China, she said.

Chinese companies spent more than $30 billion last year buying mining assets and oil deposits to help secure raw material supplies to feed the nation’s growing economy. Minmetals owns the world’s second-biggest zinc mine and other assets in Australia, Laos and Canada. Michelmore said in January he was targeting copper, lead and zinc mines.

“Prospective bidders for Equinox Minerals may be reticent to become involved in a bidding war with Chinese interests,” said Tim Schroeders, a Melbourne-based money manager at Pengana Capital Ltd., which manages about $1 billion.

Bid Premium

The offer premium of 33 percent to the volume weighted average Equinox share price of the past 20 days compares with an average premium of 24 percent for resources deals of at least $500 million during last year, according to data compiled by Bloomberg.

“It fits perfectly into the key areas we want to grow in, extending our mine life, expanding our portfolio of regions, leveraging on our management and technical expertise to extract value and most importantly it’s supported by our majority shareholder,” Michelmore said during a media conference call. Minmetals has been studying Equinox for “well over a year” and built a 4.2 percent stake in the company during 2010.

The Hong Kong-based company is offering 11.3 times earnings before interest, tax, depreciation and amortization compared with the average of 7.2 times EBITDA in 10 comparable deals from 2007 to 2009, according to data compiled by Bloomberg.

Curtail Supply

Copper for delivery in three months on the London Metal Exchange traded at a record $10,190 a metric ton on Feb. 15 and is expected to rise as mine shortages curtail supply. Copper would account for 60 percent of Minmetals’ total production in fiscal 2015, compared with 25 percent, should the takeover succeed, the company said in a presentation.

“The global recovery is becoming more broad-based and you’re not going to see any new mines coming on stream for at least this year,” said Christin Tuxen, a Bloomberg top-ranked analyst at Danske Bank A/S in Copenhagen. “You’ve got to be bullish copper for the next few years.”

For miners, mergers and acquisitions are a faster, cheaper route to production than constructing projects from scratch, Standard Chartered Plc said last year in a report. The cost of building a copper mine has more than doubled in the past five years, according to the report.

Buy, Build?

“The costs of acquiring mining leases and building mine infrastructure have escalated materially over recent years, and in many cases it is now cheaper to buy an existing business than develop capacity internally,” said Sydney-based White Funds’ Gluskie.

Producers haven’t kept pace with demand because reserves are becoming harder to find and ore quality is declining, meaning less copper is extracted from each ton of rock.

The offer requires approval from Chinese and Australian regulators. Minmetals lodged an application with Australia’s Foreign Investment Review Board on March 11, Michelmore said.

Minmetals is seeking to acquire a minimum of two-thirds of its target’s outstanding shares. Minmetals completed the $1.85 billion cash and share acquisition in December of parent company China Minmetals’s Australian unit.

All financing for the proposed deal will be arranged with Chinese banks through a combination of existing cash reserves, long-term credit facilities and equity, including investments in Minmetals by Chinese institutions, the company said in a statement.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at;

To contact the editor responsible for this story: Andrew Hobbs at
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