Cold mining is hard to stop Chinese buyers from surging

Following the recent big moves by Minmetals and Baosteel, the state-owned investment group, Guangsheng Assets, intends to bid for the shares of Pan Aust, an Australian copper mining company, for a price of A$1.1 billion. Copper ore ore fell into a bear market and China's relaxation of foreign mergers and acquisitions policy controls, or directly stimulated the appetite of miners. In the first four months of this year, Chinese companies’ overseas mineral mergers and acquisitions soared by 63%.

The state-owned investment group Guangdong Guangsheng Asset Management Co., Ltd. (referred to as Guangsheng) plans to bid for all the shares of the Australian copper mining company Pan Aust. Reuters reported today that Guangsheng had offered A$1.1 billion (US$1 billion) to Pan Aust and planned to make a cash purchase of A$2.3 per share, a 46% premium over PanAust’s closing price on Monday.

Pan Aust is the operator of many copper, gold and silver mines in Laos and mineral projects in Thailand and Chile. In addition, Reuters stated that Pan Aust is acquiring GlencoreXstrata's majority interest in the Frieda River large-scale copper-gold project in Papua New Guinea.

However, Pan Aust said that it is unlikely that the company will recommend the broad current quote to shareholders, but has agreed to allow Guangshen to conduct due diligence on the company to increase the bid. According to the company’s disclosure, Hirose’s initial offer was $2.20 last month and was later raised to $2.30. Guangsheng is already the largest shareholder of PanAust with a 23% stake.

After the news broke, Pan Aust's share price soared by more than 30%, the latest offer of 2.12 Australian dollars.

Miners' international ambitions

The planned acquisition of Pan Aust shares by Guang Shen is just a microcosm of the recent surge in mineral purchases by Chinese miners overseas.

Last week, the state-owned China Baosteel Group and Australian cargo operator Aurizon bid for Aquila, a global coal company with a valuation of approximately US$1.4 billion.

Prior to this, Minmetals-owned Minmetals Resources Co., Ltd. (MMG) announced that the consortium consisting of MMG, Guoxin International Investment Co., Ltd. and CITIC Metal Co., Ltd. and Glencore could reach an equity acquisition agreement for the Las Bambas copper project with a transaction value of 5.85 billion U.S. dollars.

Miners buy more global minerals, aiming to achieve long-term strategic goals

Wall Street has previously mentioned that Minmetals Chief Executive Officer Andrew Michelmore estimated that the production of Las Bambas, a large copper mine with a capacity of 140,000 tons/day, will increase the production of Minmetals by 1.5 times. The company will go beyond Jiangxi Copper Group to become the largest copper producer in Asia and rank among the top 15 in the world.

Baosteel Group, which acquired Aquila, stated that the acquisition is in line with the strategic goals of Baosteel Resources International, and it will create a leading overseas resource industry platform through the development of the Australian iron ore project and the hard coking coal project.

Two factors stimulate the appetite of miners

As the world's largest importer of copper ore and iron ore, China's miners are returning to the global mineral acquisition market due to lower mineral prices and policy incentives.

For a long time, the three major mining companies in the world have mastered more than 70% of the international iron ore seaborne supply, and China is subject to control. In order to get rid of the monopoly of the three major mines and to have more control over pricing, in recent years China has encouraged enterprises to invest in mining in the sea. However, in the past few years, the global copper price and iron price were firm, and Chinese companies have repeatedly suffered setbacks in purchasing copper projects overseas.

However, since April last year, copper ore ore has fallen into a bear market. The lower prices have once again stimulated the appetite of Chinese miners. The price of iron ore recently approached the lowest level since the end of 2012, and prices have fallen by more than 20% during the year. In addition, China’s policies have been positive. From May 8th, according to the latest policy, projects with a transaction volume of less than US$1 billion will no longer require pre-approval from the China Development and Reform Commission.

In the first four months of this year, global mining mergers and acquisitions by Chinese companies soared by 63%. According to Bloomberg News, JayLeary, a global joint partner at Freehills, said that China’s demand for mining assets may double global mining transactions this year. China's primary goal is copper, iron and coal. “Recently, the mining industry has undergone significant changes in the volume of mergers and acquisitions. It is expected that in the coming year, Chinese investors can play a more important role in global mining transactions, perhaps accounting for 30% of the total transaction volume.”

According to PricewaterhouseCoopers's report earlier this year, China's overseas M&A investment reached a record high of 66.4 billion U.S. dollars in 2012, and fell to 51.5 billion U.S. dollars in 2013, a year-on-year drop of 20%. However, the share of overseas mergers and acquisitions in Australia’s countries has continued to increase, with a year-on-year increase of 34% in 2013 to US$7.7 billion.