China's Minmetals Resources C$6,3-billion bid for Equinox Minerals is the perfect test case for state-controlled Chinese entities looking to acquire overseas mining assets, Canadian bankers told the Reuters Global Mergers and Acquisitions Summit on Tuesday.
Equinox, target of an unsolicited offer from Chinese metals trader Minmetals, is a Canadian company with listings in both Canada and Australia. While the majority of its board is based in Canada, Equinox's chief executive is based in Australia and its assets are spread across Africa and the Middle East.
"I don't think they could have picked a better target, or timing to try a hostile bid and see what the reaction is," said John Tuer, managing director for mergers and acquisitions at Scotia Capital, the investment banking arm of Bank of Nova Scotia.
Tuer noted the very fact that Equinox itself is entangled in a hostile battle to acquire rival Lundin Mining also bodes well for Minmetals.
"As a test case for them, it's about as good a fact-set as you could have," he said, while speaking at the Toronto-leg of the Reuters Summit.
State-controlled Chinese entities have for the most part focused on joint-ventures, resource off-take agreements and minority stakes in foreign mining companies, as they attempt to sate China's growing appetite for metals and other commodities.
"Given the fact that the great majority of the assets and operations are abroad. It is less likely to be a controversial issue than lots of other potential targets," said Andre Hidi, who heads the global mergers and acquisitions group at BMO Capital Markets, the investment banking arm of the Bank of Montreal.
Chinese firms, including Minmetals itself, have in the past run into issues while trying to seal overseas deals in Canada, Australia and other parts of the world.
In 2009, China Non-Ferrous Metal Mining Co was blocked from buying a controlling stake in Australian rare earths miner Lynas Corp. Australia also blocked Minmetals bid for Oz Minerals' Prominent Hill copper and gold mine because the mine was too close to a defence rocket range.
Minmetals attempt to acquire former Canadian nickel miner Noranda back in 2004, also ran aground after unions and politicians voiced strong objections to the bid.
"The government has said in the past that it would pay particular attention to transactions involving sovereign controlled entities," said Peter Buzzi, managing director and co-head of mergers and acquisitions at Canada's largest bank, the Royal Bank of Canada.
"They haven't really given any direction to what that means and how they are going to look at them," said Buzzi. "But certainly, any sovereign controlled entity is going to attract increased focus."
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