MAC: Mines and Communities

Toronto plays key role in recent Chinese mning deals

Published by MAC on 2008-01-08

Toronto plays key role in recent Chinese mning deals

8th January 2008

Following takeovers by Chinese companies of two Peruvian miners in late 2007, the Jinchuan group has now sealed a deal with Canada's Tyler Resources to acquire Mexico's biggest copper-zinc resource.

Toronto's BMO Nesbitt Burns was in each case the key Chinese advisor for the deals.

China mines Canadian advice

Beijing's state-owned firms turn to Toronto bankers and lawyers as it scoops up mining companies


8th January 2008

When China goes shopping for mining assets in Peru or Mexico these days, one of the first calls it makes is to Toronto. The Asian superpower's booming economy has a ravenous appetite for base metals, and when state-owned Chinese firms bid for foreign mining companies to secure supply, they turn to Canadian bankers and lawyers for advice.

Over the past year, China has struck deals with three junior miners on the Toronto Stock Exchange, including a friendly $214-million bid this week by Chinese nickel and copper producer Jinchuan Group Ltd. for Calgary's Tyler Resources Inc., which is developing a copper project in Mexico.

In each case, Toronto's BMO Nesbitt Burns Inc. advised China on the transaction.

"The Chinese companies, not only in mining but in other areas as well, have a lot to learn on the international stage. They are looking for advisers they can be comfortable with ... We spent a long time building up that trust and that is why we get these calls," Michael Rayfield, BMO Nesbitt Burns vice-chairman, said in an interview.

BMO isn't the only Canadian firm that has won advisory business from China. Law firm Davies Ward Phillips & Vineberg LLP advised Jinchuan on the Tyler deal and China Minmetals Corp. on its $455-million bid for Vancouver's Northern Peru Copper Corp. last month.

"[China] is getting used to the transactional marketplace ... they're saying, 'let's get used to doing these deals at a smaller level,' " said Davies senior partner and M&A specialist Bill Ainley.

By the standards of the supercharged mining world, the Chinese deals have been small - the largest was Aluminum Corp. of China's $840-million takeover bid for Peru Copper Inc. last June. But players say, in time, China will pull the trigger on a major takeover.

BMO was the first Canadian bank to open an investment office in China, with an eye to rich fees from mining deals.

"We've gotten to know people in the corporations themselves and the people who make decisions in government. As a result of that, we have grown a relationship where they are comfortable with us and trust us," Mr. Rayfield said.

After an abortive attempt by Minmetals to buy Canadian mining icon Noranda Inc. in 2004 (Minmetals was advised by U.S. investment bank Citigroup Inc.), China has returned to the table with offers for junior firms.

"You've got to walk before you can run," said Egizio Bianchini, the global head of BMO's metals and mining group.

Instead of assets in Canada or the U.S., China has bought properties in South America and Africa, where concerns about Chinese resource ownership are less prevalent.

"They're trying to secure their own resources instead of paying $3 (U.S.) a pound for copper and they are doing it in baby steps," Canaccord Adams analyst Orest Wowkodaw said.

China has bought small, solid properties and he expects the size of takeovers to increase. The analyst said it's no surprise China has engaged Canadian investment bankers in its mining property quest.

"There is no other region that knows mining better than guys in Toronto," he said.

The Tyler deal, which its board recommends, will see Jinchuan pay $1.60 a share - trumping a hostile all-stock offer launched in November by Vancouver's Mercator Minerals Ltd. Tyler president and chief executive officer J.P. Jutras said any preconceived notions that Chinese state-owned firms are difficult to deal with were allayed during the negotiations, which wrapped up over the weekend in Beijing. "At every turn, the homework had been done," he said.


A Canadian resource

China buys foreign properties using Canadian advisers

The Deal: June, 2007, Chinalco offers /// $840-million for Peru Copper Inc. and its /// Toromocho project in Peru

China's Financial Adviser: BMO Nesbitt Burns Inc.

China's Legal Adviser:

McCarthy Tétrault

The Deal: December, 2007, China Minmetals and /// Jiangxi Copper bid $455-million for Northern Peru /// Copper Corp. and its Galeno copper project in Peru

China's Financial Adviser: BMO Nesbitt Burns

China's Legal Adviser:

Davies Ward Phillips & Vineberg LLP

The Deal: January, 2008, The Jinchuan Group Ltd. /// bids $1.60 a share for Tyler Resources Inc. and /// its Bahuerachi project in Mexico in a deal worth /// $214-million.

China's Financial Adviser: BMO Nesbitt Burns

China's Legal Adviser:

Davies Ward Phillips & Vineberg

Jinchuan raises ante for Tyler

Peter Koven, Financial Post

8th January 2008

Jinchuan Group Ltd.' s $214-million takeover offer for junior miner Tyler Resources Inc. demonstrates China's willingness to acquire low-grade, early-stage mining projects as it secures long-term resources to feed its surging economy.

Just six months ago, Tyler shares were languishing at around 60¢ each. The company identified Mexico's biggest undeveloped copper-zinc resource at its Bahuerachi project, but the grades were relatively low and investors were not thrilled with the drill results from the property.

The deposit is also considered very speculative as it has not reached the feasibility stage.

None of that stopped Jinchuan, which agreed to take out Tyler yesterday for $1.60 a share, a whopping 116% premium over its stock price on Oct. 18, the day before Tyler received a hostile offer from Mercator Minerals Ltd.

"[Tyler] never attracted the Canadian or U.S. majors," said Josef Schachter, a fund manager who recommended the stock for years and sold his stake yesterday. "But a low grade, very large tonnage deposit is something the Chinese would be interested in. They're thinking in multi-decades for control of the resources they need to keep their economy going."

Tyler's deposit at Bahuerachi meets the size requirement, as the Calgary-based firm has identified a measured and indicated resource of more than 525 million tonnes, with a cop-per-zinc equivalent grade of 0.83%.

This is the second significant takeover of a Canadian miner by a Chinese firm in just one month. In early December, Northern Peru Copper Corp. agreed to be bought by China Minmetals Ltd. and Jiangxi Copper Company Ltd. for $455-million.

Industry experts agreed yesterday that the takeovers of Tyler and Northern Peru are an indication that Chinese companies will get more and more aggressive in buying up foreign resources.

"They have the commitment, the growth that will allow them to take risks, and they're going down the pipe in the level of maturity of projects they're looking at," said Tyler chief executive Jean Pierre Jutras. "As people realize on our side of the pond how serious, how diligent they are, and the understanding of how they operate, I suspect we'll see a lot more partnerships and transactions."

Paul Beamish, director of the Asian Management Institute at the Ivey School of Business, added that Chinese acquirers are getting a boost from their currency. The yuan has appreciated against the U.S. dollar after China allowed it to float more freely.

"It makes it that much easier for Chinese companies to buy foreign assets," he said.

The Jinchuan Group, which is buying Tyler, is a fully-integrated miner and manufacturer with annual production capacity of 130,000 tonnes of nickel and 400,000 tonnes of copper. It is mostly state-controlled, although it has been planning an initial public offering.

Jinchuan first approached Tyler about a potential takeover last July. But the process sped up in October, when Mercator unveiled a hostile bid for Tyler worth $1 a share.

The Tyler board hired CIBC World Markets as a financial advisor and sought out rival bids. Mr. Jutras noted that many of the interested parties were Asian companies. But in the end, Jinchuan had a head start and put forth a proposal that was clearly superior to anyone else.

Mr. Jutras said that Jinchuan's willingness to pay $214-million amid turbulent market conditions shows how committed it is to long-term growth.

"They have a mandate to feed the beast," he said.


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