[miningmx.com] — METOREX said on Monday its proposed takeover by Jinchuan was proceeding according to schedule, despite a sharp drop in the group’s share price on fears that the Chinese commodities giant might be having second thoughts over the deal.
“The closing of the Jinchuan transaction is proceeding on plan and in line with the timetable as set out in the circular sent to shareholders on 2 August 2011,’ read an announcement which was issued with a quarterly report.
Jinchuan in July made a R8.90 per share bid – amounting to R9.1bn – for the JSE-listed copper producer which owns operating assets in the Democratic Republic of Congo and Zambia. But Metorex in recent days traded below R8.00/share, prompting speculation that some investors might be viewing the Jinchuan offer, despite its guarantees, with scepticism.
An article published by Business Day on Monday listed two reasons for this: Jinchuan appeared not to have the required Chinese regulatory approval, while the falling copper price might also prompt the company to walk away from the deal, similar to what compatriot China Guangdon Nuclear Power did when it dropped a bid for Namibian uranium miner Kalahari Resources in the wake of the Fukushima nuclear disaster.
But analysts disagreed, saying neither the depreciation of the copper price, nor a fallout from Zambian President Michael Sata’s election victory should be viewed as negative catalysts for the deal. Sata has in the past been critical of Chinese miners.
“The Chinese are the biggest foreign investors in Zambia,’ UBS Investment Bank said in a note to clients. “Pres. Sata has been more critical of Chinese labour practices in Zambia as opposed to them having operations in Zambia.
“The MinMetals/Anvil deal is an indication of positive sentiment by the Chinese, especially since the deal metrics look more expensive,’ the note continued, pointing to Friday’s announcement of a $1.28bn bid by China’s Minmetals for Anvil Mining, also an African copper player.
“We believe this (the Metorex deal) is a strategic purchase for China. Jinchuan will use Metorex as a platform to expand operations in Africa.’
A UK asset management firm concurred that Jinchuan had a long-term view on the transaction, saying the company knew Metorex very well from being the benefactor of a cobalt offtake agreement.
As for regulatory approvals, the asset manager said DRC and Zambian authorities were expected to make an imminent announcement, but that a green light from China might take longer than expected.
“We were always sceptical on October for the PRC approvals,’ the group said, adding that no Chinese state-owned enterprise has ever walked away from a firm offer – the bid for Kalahari Resources was only an approach, not a formal deal, the group said.
Imara SP Reid’s Steve Meintjes said given the difference between the current share price – the stock closed at R7.80 on Monday – and Jinchuan’s offer he now rated Metorex as a “buy’.
“Since 1 July, just before the Jinchuan intention to bid was announced, the rand has weakened some 21%, making the Chinese bid correspondingly cheaper,’ Meintjes said.
“Jinchuan could hardly have been unaware (of) the possibility of the copper price slumping in a possible recession and the long-term considerations which drove the deal will not have changed.’
