Bloomberg News

Minmetals Gets Copper Assets on Second Attempt in Anvil Deal

September 30, 2011

(Updates with closing share price in fifth paragraph.)

Sept. 30 (Bloomberg) -- Minmetals Resources Ltd., a unit of state-owned China Minmetals Group, agreed to buy Democratic Republic of Congo copper producer Anvil Mining Ltd. for HK$10 billion ($1.3 billion) to help source supply for China, the biggest consumer.

Minmetals will pay C$8 ($7.6) a share for each of Anvil’s, the Hong Kong-based company said today in a statement. The board of Anvil, listed in both Sydney and Toronto, has recommended the offer, it said. The offer is a 39 percent premium to Anvil’s closing Canadian share price yesterday.

China is snapping up deposits in Africa, including Congo, rated the third-least desirable place to operate a mine, amid a shortage of new copper discoveries. Minmetals, which had its C$6.04 billion offer for African copper miner Equinox Minerals Ltd. trumped by Barrick Gold Corp. in April, is paying less than half the median valuation of assets for Anvil.

“This acquisition is part of China’s move to have access to raw materials,” Peter Rudd, mining and resources manager at Armytage Private Ltd., said by phone from Melbourne. “They realize the importance and the significance of those materials to their future wellbeing.”

Anvil soared C$1.89, or 33 percent, to C$7.66 at 4 p.m. in Toronto Stock Exchange trading. Anvil rose 32 percent to A$7.65 at the close in Sydney trading. Minmetals has applied for approval from Australia’s Foreign Investment Review Board for the offer. China Minmetals is the nation’s largest metals trader.

Anvil Output

Adding Anvil will boost Minmetals’ copper output by about 60 percent and its copper reserves by 75 percent to about 1.7 million metric tons, Minmetals said in a presentation. Anvil may produce 60,000 tons of copper cathode annually from next year, it said.

Minmetals’ offer values Anvil at about 1.7 times the value of its total assets, based on data compiled by Bloomberg. That compares with the median of 4.08 times of 10 similar deals in the last five years, and with 2.5 times the value of Equinox’s assets.

The Chinese company led by Australian Andrew Michelmore, who sold WMC Resources Ltd. to BHP Billiton Ltd. for $9.2 billion in 2005, is taking advantage of the global market rout that has wiped 31 percent off the copper price since a February high in London. China has spent $17 billion this year buying mines to secure supply to feed its industrial growth.

China’s Jinchuan Group Ltd. agreed to buy African copper producer Metorex Ltd. for $1.36 billion in July and Sichuan Hanlong Group has offered to buy Sundance Resources Ltd., developing an iron ore mine in Congo, for A$1.2 billion ($1.16 billion.

Copper Takeovers

There have been $11.2 billion copper mining takeovers so far this year, compared with a total of $12.4 billion last year, data compiled by Bloomberg shows. The biggest was Barrick’s takeover of Equinox.

Minmetals is advised by BNP Paribas SA and Anvil is advised by BMO Capital Markets. Minmetals will use a loan from Album Enterprises, a unit of its largest shareholder, to fund the deal, it said.

Congo holds 4 percent of global copper reserves and is among the world’s largest producers of cobalt. The nation, recovering from more than four decades of dictatorship and war, is in the second year of a three-year, $561 million loan program backed by the International Monetary Fund to reduce poverty and spur economic growth.

Third Last

The Fraser Institute, a Canada-based research organization, ranked Congo third last in its 2010-2011 Survey of Mining Companies out of a total of 79 countries. The ranking reflects uncertainty created by the nationalization and revision of mining contracts by the Joseph Kabila-led government, the report said.

Congo shuttered the $750 million First Quantum Minerals Ltd.’s Kolwezi copper venture and revoked its license in August 2009, saying the Vancouver-based miner hadn’t fulfilled its contractual obligations, a claim the company denied. It still expects to get its license restored, it said in July.

The U.S. has a warning against travel to the country because of security concerns about elements of the Congolese military and rebel fighters, according to the Department of State. Foreigners were kidnapped by armed militia groups in two separate incidents in April 2010, it said.

Mutoshi Project

Anvil has faced allegations of enabling the Congolese army to attack rebel groups at Kilwa in the northeast part of Katanga Province. In 2004, the army took over vehicles owned by Anvil and used them to suppress the rebels, killing about 100 people. Anvil has said it had no option but to agree to the request by the army to use its vehicles, and had no knowledge of a planned military operation.

The takeover may trigger the sale of Anvil’s 70 percent stake in the Mutoshi project to Gecamines, Congo’s state-owned copper mining company, Minmetals said today. The stake may be worth $52.5 million, it said.

“Anvil’s experience and relationships would be leveraged to further grow in” southern and central Africa, an area with “enormous exploration potential,” Minmetals said in the presentation.

--With assistance from Christopher Donville in Vancouver. Editors: Rebecca Keenan, Steven Frank.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net.

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Keith Gosman at kgosman@bloomberg.net.


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