Shares in Equinox Minerals jumped 29% yesterday after Minmetals Resources, the Hong Kong arm of China’s biggest metals trader, revealed a surprise $A6.3 billion offer.
Equinox, which has been involved in a messy offer for Canada’s Lundin mining Corp, seems to have been blindsided by the Minmetals Resources offer which is being made at $C7 a share (around $A6.70 at current exchange rates).
It is the largest unsolicited takeover offer yet made by a Chinese company for a foreign group and underlines the increasing desire of that country to control more and more of the raw materials it is consuming in ever increasing amounts.
The bid comes as world copper prices have fallen in the past two months as doubts appear about the strength of demand from China.
Copper prices are off around 8% from the all time high on the London Metal Exchange of $US10,190 a tonne.
The bid will no doubt be a talking point at the copper industries annual jamboree in Chile, which began overnight.
News of the surprise offer saw Equinox shares end yesterday up $1.64 at $7.35 as investors punted that the bid might bring a higher offer from a rival company.
Equinox directors told shareholders not to do anything pending further advice from the company.
A view on the offer might come at the meeting next week on April 11 where Equinox shareholders will be asked to approve the Lundin bid.
A vote in favour of the bid (if the meeting goes ahead) would knock out the Minmetals offer.
If all of the Lundin common shares are acquired, Equinox will pay an aggregate of C$2.4 billion in cash and issue approximately 379 million Equinox common shares to Lundin shareholders.
That would be unacceptable to Minmetals because, to provide the cash, Equinox is taking on a $US3.2 billion short term loan.
Equinox is listed in both Australia and Canada and owns Africa’s biggest copper mine in the Lumwana operation in Zambia, with current production of 145,000 tonnes per annum and a stated mine life of 37 years.
It also owns the biggest copper mine in Saudi Arabia.
Minmetals Resources is run by Australian Andrew Michelmore who used to be CEO of WMC Resources and for a while ran Zinifex and then OZ Minerals.
OZ Minerals sold its all of its mining assets to Minmetals’ Chinese parent, bar the Prominent Hill mine in South Australia and some exploration sites.
Minmetals, which controls 4.2% of Equinox, said it expects to formally commence its offer within three weeks.
Minmetals says the $C6.3 billion offer will be subject to termination of Equinox’s bid for Lundin, without any Lundin shares being accepted.
Minmetals also said its bid would be conditional on more than two thirds of Equinox shares having been deposited into the offer.
The transaction also needs approval under the Australian Foreign Acquisitions and Takeovers Act.
"Our offer for Equinox aligns with MMR’s strategy for growth, enhancing our global production portfolio," Mr Michelmore said in the statement.
"For Equinox shareholders, the offer is compelling in that it not only provides a substantial premium and certainty of value, but it also provides a superior alternative to the proposed acquisition by Equinox of Lundin."
Minmetals completed a $1.8 billion cash and shares acquisition last December of parent company China Minmetals Group’s Australian MMG unit, comprising the world’s second biggest zinc mine and other assets in Australia, Laos and Canada.
They are the assets sold by OZ Minerals several years ago to refinance itself. They include the Century mine in Queensland.
The Hong Kong-listed Minmetals says the offer is a 33% premium to the 20 day trading value weighted average price of Equinox shares.
But it is only just above the all time high for Equinox of $6.83 reached last month and on yesterday’s currency conversion, the price is actually lower than that level.
That means Minmetals Resources will have to add more to the pot to get the bid over the line.
Minmetals says it will finance the offer through existing cash reserves and long-term credit facilities with Chinese banks and equity.
The question for all those eager punters (hedge funds) bidding up Equinox shares is, is there a big miner game enough to overbid a Chinese company in a move that might cost future sales in the world’s biggest market?
