The Chinese company offers $6.5 billion to secure supplies of copper and other metals
MELBOURNE, Australia - Minmetals Resources Ltd, China's biggest metals trading company, on Monday offered $6.5 billion to buy Equinox Minerals Ltd, chasing Equinox's copper assets in Zambia and Saudi Arabia.
China, which accounts for 40 percent of the world's demand for copper, is on a mining-acquisition spree as prices for the red metal hover near record highs.
Minmetals, which owns mining operations in Australia and Asia, said it will offer C$7 ($7.22) for each share for Equinox, a 23 percent premium to Equinox's close in Toronto last Friday of C$5.71.
It will be China's fourth-biggest outbound merger and acquisition deal, according to Thomson Reuters data.
Equinox's Australian shares surged 29 percent to a record A$7.35 ($7.59), topping the value of the Minmetals' offer on expectations a rival bid may emerge.
"It's game on now," said Ausbil Dexia Chief Executive Paul Xiradis, a shareholder in Equinox. "They'll be looking to defend their turf and it may entice another party to come in as well, looking for quality assets such as those held by Equinox."
"It fits into a strategy of building a leading international diversified base-metals upstream business," Minmetals Chief Executive Andrew Michelmore told a news conference in Hong Kong on Monday.
"It certainly fits in with the strategy in terms of growing the base-metal size, particularly in terms of copper," said Michelmore, adding Minmetals would be the world's 14th largest copper producer after the deal, from its current rank of 30th.
The offer is conditional on Equinox dropping a C$4.7 billion ($4.8 billion) bid for Canada's Lundin Mining, which has been the subject of a separate takeover tussle between Equinox and Inmet Mining Corp.
Investors said it was possible that rival bidders may emerge for Sydney- and Toronto-listed Equinox, but said they may be deterred by Minmetals' financing power.
While Minmetals has a market value of just $2.5 billion, the metals trading company said its bid was being funded with credit from Chinese banks and equity investments by Chinese institutions.
"Ultimately no one wants to get into a bidding war with Chinese-related parties, given that Chinese companies are perceived to have a lower cost of capital relative to Western companies," said Tim Schroeders, a portfolio manager at Pengana Capital.
Minmetals was finalizing a loan of around $5 billion to back its bid, Thomson Reuters publication Basis Point reported on Monday. The banks approached include Bank of China and China Development Bank, sources with knowledge of the matter said. European and Japanese banks have also been in talks with the borrower, they added.
China, and to a lesser degree India, have been scouring the globe to secure resources to fuel their fast-growing economies. Chinese banks have lent African nations billions of dollars and committed to fund major infrastructure projects as they push for access to copper, iron ore, and other resources.
Surging global demand for copper, plus the high cost and long lead time to bring new resources to production, have fueled expectations of more takeover activity and a prolonged bull run in the metal.
London Metal Exchange copper touched a record high of $10,190 a ton in February, and on Monday stood at $9,350. It has risen some 120 percent in the past two years.
Investors said Minmetal's offer premium was reasonable but not necessarily high enough, as Equinox's shares had declined in recent weeks on concerns about the Lundin deal.
"I will describe it as a realistic offer but not a knock-out bid," said James Bruce, portfolio manager at Perpetual, which recently sold its Equinox shares.
"It's a cleverly timed bid by Minmetals. We thought Equinox were paying too much for Lundin and were taking on too much debt in that deal."
This will be Minmetals' second major acquisition after it bought Minerals and Metals Group (MMG) for $1.85 billion from State-owned parent, China Minmetals Non-Ferrous Metals Group, late last year. It is already planning a new share issue of $1 billion to part-fund the MMG deal.
Equinox said in a statement that its board will meet to consider the Minmetals bid. It has not yet made a recommendation to shareholders to accept or reject the bid.
A source familiar with Equinox said the Minmetals approach caught the company by surprise. Equinox executives are currently in Canada marketing the Lundin offer, which the latter's board has urged shareholders to reject.
The deal marks the latest in a string of Australian mining takeovers involving Michelmore of Minmetals, who has been criticized by some disgruntled investors for his track record on mergers and acquisitions.
He was at the helm of WMC Ltd in 2005 when it was sold to BHP Billiton for $6 billion, a sale seen as too cheap after nickel prices rocketed shortly after the deal was completed.
Michelmore then went to work for the Russian oligarch Oleg Deripaska for two years, before returning to Australia to head the zinc miner Zinifex, which merged with Oxiana to form OZ Minerals.
A year later, the global financial crisis sank OZ under a debt pile, clearing the way for Minmetals to buy most of its assets for $1.4 billion.
Reuters
