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South Africa: All mine! The Chinese close their first Africa mining play
By Juwai, 22 February 2012
It's on. China Minmetals Group, the Hong Kong listed Chinese state-backed mining company, has been trying for years to buy themselves an African mining company. Last week, they just did that. Anvil Mining is the first shining jewel in the Chinese parastatal's mining crown. It won't be the last. Richard Poplak reports for Daily Maverick.
February 21, 2012
-- Ah, property in the Democratic Republic of the Congo! Forget the American Dream - this is the African dream. Who can refuse a plot of land in a tsetse fly-infested warzone? Especially when its studded with copper, the magical metal that is weaving together China's massive year-on-year growth, driven by fixed income investment that builds roads, buildings and conference centres in megacities you have never heard of.
Certainly not Chinese state-backed miner Minmetals. The company has been sniffing around African mining companies for a couple of years now, parrying for a play that would earn them an acquisition that makes sense. Last year, Minmetals threw C$6,3-billion at Equinox Minerals Ltd, which has copper assets aplenty in Zambia. Minmetals finally walked away from the deal, considering it way too dear, which in turn woke up African miners to a fundamental truth: the Chinese may indeed have deep pockets, but they weren't going to buy just for the sake of buying. Deep pockets don't stay deep that way.
So, the Chinese miner waited. And along came copper diggers Anvil Mining Ltd. At C$8 per share, the company was in the right price range, and the play was in accordance with the Chinese tolerance for risk: its major asset is in the Democratic Republic of the Congo. The Kinsevere mine produced 16,000 tonnes of copper in concentrates in 2010, and is looking to quadruple that output.
So Melbourne-based Minmetals CEO Andrew Michelmore pounced. An offer was made to purchase 90% of Anvil's shares. And C$1,3-billion later, Minmetals is now in the position to produce 60,000 tonnes of copper a year. It will delist Anvil from the Toronto and Australian stock exchanges post-haste, and make it a member of the Minmetals family.
Just another mining play in what is shaping up to be the year of the miner? Not really. Despite the blockbuster (potential) merger of Glencore and Xstrata, which still awaits Xstrata shareholder approval, this deal remains significant. It represents Minmetals entry into the African market - and while fellow Chinese miner Jinchuan Group Co. outbid Brazil's Vale for South Africa-listed Metorex Ltd last year, this is the deal that seems to signal the tipping point. The Chinese have, officially, arrived.
Is this a thing? Not necessarily. On one hand, it represents a new player on the block, which means increased competition. It also means, with Minmetals' risk tolerance, that even a joint like the DRC can expect real interest in its properties. (Not that political instability and internecine war has ever stopped mining companies, but it does make them think twice.) Minmetals is determined to become a major international player, and signalled as much when it purchased Minerals & Metals Group from its parent China Minmetals Non-Ferrous Metals Co. in October 2010. Andrew Michelmore came with the property, and he has brought Minmetals a wealth of experience and a Western sheen, all of which seems to have helped.
As for the DRC? "We bid for Equinox, now we've got Anvil, so we're interested in that part of the world," Michelmore has said. "We like that prospectivity." Minmetals is now looking all over the globe for new acquisitions, and is willing to drop anything between the C$1 to the C$7-billion range for an asset about to go online.
Ultimately, it doesn't have much choice. Minmetals is backed by the Chinese state, and is answerable to state-backed policy. And with China using over 40% of the world's copper resources, with a further 6 to 7% projected rise this year alone, they need commodities in massive amounts. This means that the Chinese remain buyers, and that African miners who put their assets on the block can expect serious and sustained interest.
There was nothing hostile about the Anvil purchase - it had effectively put up a For Sale sign last August, when a majority owner signalled an interest in selling 39% of the company's shares - so this was very much in the cards. Still, it underscores something we already knew: the Chinese are here. And in 10 years, this continent is going to look very different, especially if China keeps booming. If it doesn't, it will look more different still.
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