Editor’s Note: The global economic crisis has brought both challenges and opportunities to Chinese enterprises—especially those that have recently entered the international mining market. Since 2009, as signs of the financial crisis bottoming out have continued to emerge, several financially strong mining companies have begun preparing for overseas investments and participating in cross-border mining mergers and acquisitions. In 2009, despite Chinalco’s failed investment in Rio Tinto in the first half of the year, numerous overseas M&A deals by Chinese mining firms were approved in the second half. This issue compiles and highlights some of China’s most notable overseas mining M&A cases from 2009 for readers’ reference. Since 2009, China’s mining investments in Australia have approached ten billion U.S. dollars, prompting the Australian side to remark that “almost every week, they are reviewing a new Chinese investment project.”
On November 6, 2009, Deloitte—one of the world’s four major accounting firms—held a press conference in Beijing titled “Pioneering New Frontiers: China’s Overseas Mergers and Acquisitions.” The firm argued that 2009 marked a watershed moment: not only were other countries investing in China, but Chinese enterprises themselves were also making significant strides abroad. However, Deloitte cautioned Chinese companies against blindly chasing bargains.
According to a Deloitte survey, as of September 8, 2009, China’s outbound investment this year reached 20.6 billion U.S. dollars, surpassing the total outbound investment for all of 2008 and exceeding that of the UK, Germany, Japan, and Australia in recent years. It ranks second only to the United States’ 25.8 billion U.S. dollars, making China the world’s second-largest outward investor. Prior to this year, however, China’s outbound investments had been relatively small: in 2007, China’s outbound investment was equivalent to just one-tenth of the UK’s and one-sixth of Germany’s; even in 2008, it amounted to little more than half of the UK’s level.
Next, we’ll revisit some classic cases of overseas mining M&A deals carried out by Chinese mining companies since the second half of this year, for the benefit of our readers.
China Nonferrous Mining Group Corporation Acquires Luanshya Copper Mine in Zambia
On June 6, 2009, China Nonferrous Mining Group Co., Ltd. signed a share-transfer agreement for the Luanshya Copper Mine with the Zambian government in Lusaka, the capital of Zambia, marking the successful acquisition of the Luanshya Copper Mine by China Nonferrous Mining Group Co., Ltd.
Before the financial crisis, Luanshya Copper Mine employed a total of approximately 1,800 people and had an annual copper production capacity of over 20,000 tons. According to the company’s five-year plan, its production capacity was expected to reach 60,000 tons within three years. On December 19, 2008, amid the severe impact of the financial crisis, Luanshya Copper Mine announced the closure of its copper mine. Subsequently, the Zambian government launched a global tender process to attract new investors. On April 30, 2009, China Nonferrous Mining Group submitted its bid. On May 8, Zambian President Banda announced that China Nonferrous Mining Group had emerged as the winner among the three bidders and would take over Luanshya Copper Mine.
After taking over the Luansha Copper Mine, China Nonferrous Metals Corporation immediately began preparations for resuming copper production. On December 22, 2009, production was restarted, with plans to reach an annual output of 30,000 tons of copper metal within 30 months, ultimately boosting annual copper metal capacity to between 70,000 and 80,000 tons. Over the next five years, China Nonferrous Metals Group will invest 400 million U.S. dollars to further expand production, creating 3,000 local jobs in the process.
China Minmetals acquires part of the assets of Australian company OZ for US$1.386 billion.
On June 11, 2009, at the annual general meeting of OZ Minerals Limited, more than 91% of shareholders endorsed China Minmetals’ revised acquisition proposal for OZ. As a result, China Minmetals acquired certain assets from Australia’s third-largest multi-metal mining company, along with other assets in the exploration and development stages, in exchange for a consideration of US$1.386 billion.
Yanzhou Coal Mining acquires 100% equity of Australian Felix.
On August 13, 2009, Yanzhou Coal Mining Co., Ltd. acquired 100% of the equity interest in Australia’s Felix at a price of A$16.95 per share (approximately RMB 96.38 per share). The total acquisition cost was approximately A$3.333 billion (equivalent to roughly RMB 18.951 billion based on the exchange rate as of August 13, 2009).
Felix Company is a publicly listed coal company in Australia. Its primary products include thermal coal, blast-furnace injection coal, and semi-soft coking coal. As of December 31, 2008, the proven and probable reserves of Felix Company’s coal mines totaled 510 million tons, with total resources amounting to 2.006 billion tons. Of this total, the proven and probable reserves attributable to Felix Company based on its actual equity interest were 386 million tons, and the total resources attributable to Felix Company based on its actual equity interest were 1.375 billion tons.
The East China Nonferrous Metals Bureau takes a 180 million yuan controlling stake in an African copper mine.
On September 14, 2009, the East China Nonferrous Geological Exploration Bureau announced that it had taken controlling interest in an African copper mine for RMB 180 million. A wholly-owned subsidiary of East China Nonferrous entered into an equity purchase agreement with Weatherly International Plc, an African copper mining company. Under the agreement, East China Nonferrous will invest £16.1 million (equivalent to RMB 180 million) to gain controlling interest in Weatherly International Plc. The financing will be provided by the China Development Bank and the China-Africa Fund. Affected by the financial crisis, Weatherly had fallen into a severe financial predicament. Through this transaction, Weatherly has secured much-needed financial support. Weatherly’s Namibia project is located along a key metallogenic belt rich in nonferrous metals, with proven copper reserves exceeding 360,000 tons. In particular, Weatherly possesses integrated capabilities—from exploration and mining to beneficiation and smelting—for the development of copper resources in Namibia. Moreover, the area already explored represents only a small fraction of the total mining rights. Therefore, the project boasts enormous resource potential and promising development prospects.
Jinchuan Group invests $2 million to acquire a 51% stake in Zambia’s largest nickel mine.
In October 2009, Gansu Jinchuan Group—the largest nickel producer in Asia and the fourth-largest globally—made another move in overseas resource investments by acquiring a 51% stake in Zambia’s Munali, the country’s largest nickel mine, for approximately US$2 million. Affected by the decline in nickel ore prices, Zambia’s Munali nickel mine had already ceased operations as of March of this year. During the financial crisis, Jinchuan continued to pursue acquisitions abroad. In January last year, Jinchuan Group acquired Canada’s Taylor Resources for CAD 214 million. Then, in March last year, Jinchuan Group further acquired an 11% stake in Fox Resources, an Australian nickel mining and processing company, for US$15.7 million.
China's Baosteel invests 286 million yuan to acquire a 15% stake in Australia's Aquila Resources.
In October 2009, the project in which China's Baosteel Group took a stake in Australia's Aquila Mining Company was approved. Aquila Mining Company is a publicly listed company on the Australian Securities Exchange, with a market capitalization of approximately A$1.7 billion. Its principal assets include partial interests in five coal mines, three hematite mines, and one manganese mine. Baosteel Group invested A$286 million to subscribe for shares issued by Aquila Mining Company in a private placement, thereby acquiring a 15% stake after the issuance and becoming the company’s second-largest shareholder.
China Guangdong Nuclear Power Group’s acquisition of equity in Australian Energy Metals Corporation.
China’s investment project in Australia—the deal in which China Guangdong Nuclear Power Group acquired equity in Australian Energy Metals Corporation—was recently approved. Energy Metals Corporation’s primary assets include nine uranium exploration projects located in the Northern Territory and Western Australia. Under the agreement, China Guangdong Nuclear Power Group plans to acquire no more than 70% of Energy Metals Corporation’s equity. Additionally, according to a senior Australian official, the Australian government recently approved an investment by Hebei Mining of China, acquiring a 14.9% stake in an Australian junior uranium developer.
Hunan Nonferrous Metals Acquires 100% Equity Interest in Canada’s Otter Creek Antimony Mine for 29.5 million yuan.
In November 2009, Hunan Nonferrous Metals Group recently disclosed that Hunan Nonferrous (Canada) Antimony Mine Co., Ltd. (HAML), a wholly-owned subsidiary of Hunan Nonferrous Metals Shares, has officially completed the acquisition of 100% equity interest in Beaver Creek Antimony Mine Co., Ltd. (BBAM) in Canada. The total investment for this acquisition amounted to 29.5 million RMB.
All of the antimony mines at the Canadian Otter Creek Antimony Mine (BBAM) are located on Newfoundland Island in eastern Canada. The mining area is characterized by hilly terrain with a relative elevation difference of less than 100 meters, and it is an uninhabited region. The nearest town, Gander, is 43 kilometers away. The proven and probable reserves currently under control amount to 1.64 million tons, with a grade of 4.76%, yielding 78,000 tons of antimony metal. Annual antimony metal production exceeds 6,000 tons—more than half of the current output from existing antimony mines. The mine has a projected lifespan of 10 years and represents a rare antimony deposit of considerable scale. Following the successful acquisition, we will be able to directly supply abundant antimony ore resources to the antimony mine.
Jin Nickel acquires 100% equity of Royal Mining Canada.
In November 2009, Jinchuan Nickel Industry Co., Ltd. announced that the first phase of its joint tender offer with Canada’s Gold Brook Risk Corporation (GBK) to acquire 100% equity interest in Royal Mining of Canada had been completed. This acquisition has received approval from the National Development and Reform Commission, which has agreed to allow the company to invest no more than CAD 200 million, of which CAD 76.18 million will be used to acquire 100% equity interest in Royal Mining, and CAD 110 million will be used to acquire the company’s convertible bonds with a face value of CAD 137 million. The remaining funds will be used to cover intermediary fees and other preliminary expenses. This acquisition of Royal Mining of Canada marks Jinchuan Nickel Industry’s fourth overseas acquisition since April of this year.
Sichuan Hanlong Group Acquires 51% Equity Stake in Australian Molybdenum and Iron Ore Mine for $500 Million
On November 16, 2009, Sichuan’s privately-owned mining group Hanlong Group announced that the Foreign Investment Review Board (FIRB) of Australia had formally approved Hanlong Mining, a subsidiary of Hanlong Group, to acquire a 51% stake in an Australian molybdenum mining company for US$500 million. Additionally, the FIRB agreed that within three years, Hanlong Group would be able to exercise its option to issue one new share for every six shares held, bringing the combined equity interest to 55.3%. This project represents the largest investment ever made by a Chinese private enterprise in Australia to date. The formal approval from the Australian government marks another significant and substantive milestone for the project, signifying that all necessary procedures on the Australian side have now been completed. As a result, Hanlong Group will become the de facto controlling shareholder of the Australian molybdenum mine and will provide US$500 million in project financing to develop the world-class, large-scale molybdenum-copper project wholly owned by Australian Molybdenum Mines Ltd. According to sources from Hanlong Group, the project boasts exceptionally promising prospects. Based on current molybdenum prices, once the project reaches full production capacity in three years, its annual sales revenue could reach 10 billion yuan, with annual profits amounting to 2 billion yuan.
In recent years, several private mining enterprises in Sichuan have aggressively embarked on overseas mining investment initiatives. Hanlong Group is just one of the more prominent players in this trend; moreover, numerous other Sichuan-based companies have also chosen to explore mineral resources abroad. According to available data, there are currently over 150 registered overseas-invested enterprises across Sichuan Province, and one-third of them have opted to venture abroad in search of minerals. Among these companies, Di'ao Group, JinGuang Industrial, Qimingxing Company, Chuanwei Group, Chuanxi Industrial Company, Kaiyuan Group, and Hongda Group have all, to varying degrees, expanded into overseas mining investment projects.
Zijin Acquires Australian Copper and Gold Mining Company for 3.368 Billion Yuan
On November 29, 2009, Zijin Mining signed a “Completion of Acquisition Agreement” with Indophil Resources NL, an Australian company, to acquire all of Indophil Resources NL’s outstanding shares and any shares to be issued during the acquisition period at a price of A$1.28 per share. The total acquisition amount was approximately A$545 million, equivalent to roughly RMB 33.68 billion. Currently, Indophil Resources NL has arranged to acquire a 3.27% stake in SMI’s Class A shares held by another company. Following completion of this acquisition, Indophil Resources NL will hold a 37.5% stake in SMI’s Class A shares. SMI has signed a “Financing and Technical Services Agreement” with the Republic of the Philippines, under which SMI, as the “contractor,” is authorized to explore and develop the Tampakan copper-gold project—a world-class copper-gold deposit located on Mindanao Island in southern Philippines. In addition to the Tampakan copper-gold mine, Indophil Resources NL also holds other exploration projects in the Philippines, including three granted mining concessions and 16 land rights currently under application, located respectively in northern and southern Luzon Island and central and eastern Mindanao Island.
Yunxi Group acquires a 50% stake in Australia’s largest tin mine for A$50 million.
In December 2009, Australia’s Foreign Investment Review Board (FIRB) formally approved Yunnan Tin Industry Group’s acquisition of Tasmania’s tin assets from Metal X, Australia’s sole tin producer. “This means that there are no longer any substantial obstacles to Yunnan Tin Industry Group’s acquisition of a 50% stake in Tasmania’s tin mining operations, essentially marking the deal as a success,” said a senior executive from Yunnan Tin Industry Group. The Tasmanian tin mine is Australia’s largest tin mine and enjoys considerable renown worldwide. The successful completion of this acquisition will undoubtedly bring greater growth potential to Yunnan Tin Industry Group.
According to the agreement between the two parties, Yunxi Group will acquire a 50% stake in Maitas’ Tasmanian operations for A$50 million, with the option to acquire an additional 10% stake depending on the performance of this business segment. The price for any additional acquisition will be contingent upon whether the tin concentrate production from this segment can reach 6,000 tons over the next year and whether operating costs can be reduced.
Jinan’s first private enterprise “mines” in Africa, securing over 20 mining rights.
On December 25, Jinan Yuxiao Group made substantial investments to acquire mining rights for more than 20 sites in Mozambique, including limestone, zircon-titanium deposits, and gold-copper-iron ore mines. It is reported that, as the first private enterprise from Jinan to enter Africa, the company’s current exploration area in Africa has reached 500 square kilometers.
Domestic demand for zircon and titanium ores is very high, yet 95% of these resources are currently reliant on imports. At present, domestic demand for zircon and titanium ores is growing at a rate of 4% annually, with annual demand reaching approximately 500,000 tons. As early as 2007, the Yuxiao Group acquired a limestone mine in the Maputo region of Mozambique, thus pioneering Yuxiao’s overseas mineral acquisition efforts. This marks the first time that a private enterprise from Jinan City has entered the mining sector. Currently, the company has signed a framework agreement with Hainan Nonferrous Metals Mining Co., Ltd., one of China’s largest zircon and titanium ore producers. The two parties will establish a limited liability company in the Yangpu Development Zone in Hainan Province, and then, through this joint venture, set up a wholly-owned limited liability company in Mozambique to jointly develop Mozambique’s zircon and titanium ore deposits as well as other metallic mineral resources.
The examples above represent just a few of the overseas investment initiatives undertaken by Chinese mining companies so far this year, yet they clearly demonstrate that companies are stepping up their pace of going global. (Wei Yufang)