[miningmx.com] — CHINA’S Minmetals Resources bowed out of the battle for copper miner Equinox Minerals on Tuesday, saying Barrick Gold Corp’s C$7.3bn bid was too rich.
Canada’s Barrick , the world’s largest gold miner, announced its agreed offer for Equinox on Monday, seeking to tap surging demand for copper from China and other developing economies that has pushed prices up more than sevenfold in the past eight years.
Minmetals, a unit of China’s largest metals trader, said it could not justify paying so much and would seek other opportunities.
“Competing with Barrick at these prices would, in our view, be value destructive for (our) shareholders,” Andrew Michelmore, Minmetals’ chief executive, said in a statement.
Investors punished Minmetals’ cautious approach, sending its shares plunging 12% in Hong Kong.
Barrick’s offer is at a rich valuation of more than 14 times Equinox’s 2010 earnings before interest, tax, depreciation and amortisation of $523m.
Equinox, a global miner listed in Canada and Australia, owns the Lumwana mine in Africa’s rich Zambian copper belt and most of the Jabal Sayid project in Saudi Arabia.
A weaker-than-expected capital raising by Minmetals in Hong Kong last week prompted speculation it might not have the funding in place to formally launch the unsolicited C$6.3bn offer it announced earlier this month.
Minmetals, which said it had a 4.2% stake in Equinox, is majority controlled by state-owned China Minmetals Non-Ferrous Metals Co Ltd, so could potentially have tapped Beijing for funding. Traditionally, however, state-owned Chinese firms do not get drawn into bidding wars.
UNIQUE OPPORTUNITY
Barrick CEO Aaron Regent had earlier highlighted his company’s strong balance sheet and access to debt when asked about responding to potential rival bids.
“We put what we think is a fair offer on the table and the Equinox board and management think so as well and we have their endorsement. If there is another bid coming we will have to wait and see,” Regent told reporters on a conference call.
Barrick offered to buy Equinox for C$8.15 a share, an 8.7% premium over its Thursday closing price. The all-cash bid is 16% higher than Minmetals’ earlier offer.
Equinox shares jumped 11.6% in Toronto on Monday and closed at C$8.37, only about 2.6% higher than Barrick’s offer, indicating investors were split of a higher offer emerging.
Barrick shares dropped more than 6% as investors questioned whether it was overpaying and whether a big move into the industrial metal would make the stock less attractive to those seeking exposure to gold prices.
In Australia, markets were closed for a public holiday.
Equinox had previously called Minmetals’ original C$7-a-share offer a low-ball bid. On Monday, it said it believed the Barrick bid was superior in terms of price and its likelihood of completion.
Minmetals, which has a current market value of only about $2.2bn, raised about $500m last week, selling fewer shares at a lower price than planned.
“China has too much hot cash and the state policy is to encourage domestic companies to go out buying resources,” Zibo Chen, an analyst at Kingsway Financial Services Group said ahead of Minmetals’ statement. “Even if they fail this time, the company will continue to seek opportunities overseas,” he said.
COPPER/GOLD FOCUS
Barrick would use about half of the $4bn in cash they have on their balance sheet to fund the deal, Regent said. The balance would be funded with debt, revolving credit facilities and new bonds.
Regent, who has a background in base metals, sees the takeover bid as an opportunity to gain access to the Zambian copper belt at a time when copper prices are expected to keep climbing to fresh records. London copper hit an all-time high above $10,000 a tonne in February and traded near $9,700 on Tuesday.
Barrick will double its position in copper with the acquisition while reducing its exposure to gold to 80% from a current 90%.
Regent said the company’s focus remained on copper and gold and that it was not planning on expanding into other commodities at this stage.
Equinox’s Lumwana mine is Africa’s third-largest copper operation by production and the Jabal Sayid development is due to start production next year.
