A mine worker looks over a quarry at a copper mine in the Democratic Republic of the Congo, Africa. Analysts have been counting on China's strength to help prop up copper prices which have fallen a steep 23 percent in September. Naashon Zalk / Bloomberg

Sustained copper demand from China driving market moves

Minmetals Resources Ltd has agreed to buy Africa-focused copper miner Anvil Mining for HK$10 billion ($1.3 billion) as the State-controlled company expands its global reach and adds base metal reserves.

Minmetals' latest acquisition comes nearly five months after it bowed out of a bidding war to buy Canadian copper miner Equinox Minerals and underscores China's growing appetite to secure supplies of natural resources to support the urbanization of its vast population.

Minmetals is offering C$8.00 ($7.66) a share, or a 39 percent premium, to Anvil's Thursday close in Toronto Stock Exchange. Anvil's depositary shares traded in Australia surged 32 percent to A$7.67 ($7.45) on Friday.

"It has been very clear that Minmetals has a mandate to make mining investment outside China," Andrew Driscoll, head of resource research at CLSA Ltd said.

"Copper looks to be at top of their shopping list and after they decided not to counterbid for Equinox earlier in the year ... the market had certainly been expecting them to launch another bid," he added.

The world's top copper user, China, accounts for nearly 40 percent of global copper consumption estimated at 21 million metric tons this year.

Analysts have been counting on China's strength to help prop up copper prices which have fallen a steep 23 percent in September.

Chinese demand for the industrial metal is expected to rise 6-7 percent next year after an estimated 8.5 percent rise this year, according to analysts.

Anvil said last month it had begun to review its strategic alternatives including a sale, sending its shares higher.

Minmetals, a government-backed unit of China's largest metals trader, said in a statement that Anvil's Kinsevere mine in Congo was expected to produce 60,000 metric tons of copper cathode per annum, substantially boosting the group's copper exposure and extend its average mine-life.

Minmetals' bid is subject to approval from Australian government, which in the past has raised concerns over takeover bids from China's State-backed enterprises.

"The Anvil board has unanimously determined that the offer is in the best interests of Anvil and the Anvil shareholders, and has recommended that Anvil shareholders accept the offer," Minmetals said in the statement.

BNP Paribas is the financial adviser to Minmetals.

Minmetals will fund the deal through a financing facility and by tapping on its own cash reserves, it said, adding that it currently did not own any common shares in Anvil.

The deal will also give a boost to mining deal volumes in Asia, after they dipped marginally in the third quarter.

Some $22.7 billion worth of resources deals were launched in Asia this quarter, slightly less than the $23.1 billion same time last year, according to Thomson Reuters data released last week. Overall Asian merger and acquisition (M&A) volume totalled $88.5 billion in the third quarter, down from $113.97 billion last year.

"If valuation continues to be depressed because of the uncertainty in the macro outlook, I think you will continue to see more M&A activity," CLSA's Driscoll said.

Minmetals shares were down 167 percent at HK$2.95, while the Hang Seng Index was down 2.32 percent.

Reuters

(HK Edition 10/01/2011 page2)