State-controlled mining company Jiangxi Copper Corp. Ltd. is stalking Vancouver-based First Quantum Minerals Ltd., owner of the largest copper mine in Africa, an approach driven by the Chinese government’s drive to lock up supplies of natural resources in the continent.
First Quantum recently hired investment bankers and lawyers to deal with a potential takeover bid from Jiangxi, China’s largest copper producer, according to financial industry sources who asked not to be named because they are not authorized to speak for the company. These sources said Jiangxi has not made a formal offer, and may decide to abandon the chase.
First Quantum’s share price jumped a total of 20 per cent on Thursday and Friday. Bloomberg this week reported possible takeover interest by global miners and a toehold 9-per-cent investment in the Canadian miner by Jiangxi. First Quantum stock closed Friday at $12.21 on the Toronto Stock Exchange, valuing the company at $8.4-billion.
Lisa Doddridge, director of investor relations at First Quantum, declined comment on Friday.
First Quantum expects to produce about 718,000 tonnes of copper this year, or about 3.5 per cent of the entire global market. It owns two mines in Zambia, including Kansanshi, Africa’s biggest copper mine, in which it has an 80-per-cent stake. It also has properties in Europe, Australia and Panama.
Chinese entities snapped up several copper and cobalt mines in recent years in what’s known as Africa’s Copperbelt, a mineral-rich region that straddles Zambia and the Democratic Republic of the Congo. The move is part of Chinese President Xi Jinping’s strategy to control what the government views as essential commodities. Publicly traded mining companies, including Freeport-McMoRan Inc. and Ivanhoe Mines Ltd., are either selling Copperbelt mines or taking on partners in the face of weak commodity prices and tax disputes with local governments.
Jiangxi currently owns mines in China and properties in Peru and Afghanistan. In 2017, the company’s chairman said during a conference that Jiangxi plans to make acquisitions in Africa.
Shane Nagle, mining analyst with National Bank Financial, said First Quantum’s high debt and weakened share price make it vulnerable to a takeover. "It makes sense that somebody would take an opportunistic look at First Quantum.”
As of the end of June, First Quantum was carrying US$7.6-billion in debt, along with US$895-million in cash. Much of the debt was incurred by the company’s 2013 acquisition of Inmet Mining Corp. and the subsequent construction of a massive copper mine in Panama. First Quantum spent about four years building Cobre Panama, a project it inherited from Inmet. The mine, which shipped its first concentrate in June, has been long touted as the company’s major growth project but construction went about $400-million over budget and cost $6.7-billion to build.
A number of the large global diversified miners, such Rio Tinto PLC, BHP Billiton Ltd. and Glencore International PLC, have expressed interest in adding to their copper portfolios, Mr. Nagle said. One, or all of them, may be interested in taking a look at First Quantum, he added.
First Quantum’s shares are trading at a discount compared with the large global miners in part because of its heavy exposure to copper. After trading up to US$2.97 a pound in April, copper prices have fallen about 13 per cent in the past six months, amid a weakening outlook for global economic growth and a continuing trade war between China and the United States.
Despite the frosty relationship between the Chinese and Canadian governments, mining companies based in China have successfully acquired domestic miners with operations outside Canada. In December, 2018, China’s Zijin Mining Group Co. closed a $1.86-billion friendly takeover of Vancouver-based Nevsun Resources Ltd., which owned copper mines in Africa and Europe.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
Andrew Willis
Niall McGee