China, the world’s biggest buyer of metals, is back on the hunt for acquisitions, triggered by a decline in prices and a shift in government policy.
Chinese demand for assets may help fuel a doubling in the number of mining deals worldwide this year, according to Jay Leary, law firm Herbert Smith Freehills’s joint global relationship partner for BHP Billiton Ltd. (BHP), the world’s biggest miner. Copper, iron ore and coal are the top targets, he said.
“Over the past six weeks we have seen a significant step-change in the amount of M&A activity in the mining sector,” Leary said in an e-mail. “Over the next year, we would expect Chinese investors to represent a material proportion of mining global transactions, perhaps as much as 30 percent of transactions.”
Mining acquisitions by Chinese companies surged 63 percent in the first four months of this year and are forecast to accelerate as new rules from today mean most overseas deals under $1 billion don’t need government approval. The decline in prices, with metals from copper to iron ore dipping into bear markets since April last year, has heightened appetites.
“China’s strategic mandate has not changed, but their approach has altered,” said David Wood, Bank of America Corp.’s Australian head of investment banking. “We will see more joint bids, more minority ownership and more partnering on late-stage developments in the right commodities.”
Baosteel, Citic
Wood helped advise state-owned China Minmetals Corp. when it led a group that agreed last month to a $5.85 billion acquisition of Glencore Xstrata Plc (GLEN)’s Las Bambas copper project in Chile. This week Baosteel Group Corp. unveiled a A$1.4 billion ($1.3 billion) deal involving an Australian iron ore and coal company and Citic Group Corp. agreed last February to buy a 13 percent stake in Alumina Ltd. (AWC)
The Baosteel bid “is a probably a harbinger of similar deals to come,” Michael Elliott, Sydney-based sector leader for Ernst & Young LLP’s global mining practice said by phone. “It’s certainly an example of low-risk deal making.”
Global miners, including BHP, have argued some expectations of the extent of slowing metals demand in China are overdone. Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest iron ore exporter, said yesterday 200 million Chinese will move to cities by 2020, driving steel demand.
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