China scouting for bargain mining deals

Chinese mining firms are gearing up to take advantage of the global downturn and seek M&A mining deals at bargain prices next year, a top official at Standard Bank said on Tuesday.

Standard Bank, which is 20% owned by the Industrial and Commercial Bank of China (ICBC), has been holding talks with Chinese mining firms, Thys Terblanche, head of mining and metals investment banking, told Reuters.

“We’re spending a lot of time with ICBC and their clients talking about opportunities for them,” he said in an interview on the sidelines of the Mines & Money conference in London.

“They are looking at 2009 and saying ‘This is a time we see as a very big buying opportunity. We’ve got the backing from government, we’ve got the financial means’.”

Chinese mining groups would keep a strong focus on Africa, but would also probably seek out possibilities in Peru, Chile, Brazil, Australia and Indonesia, he added.

The global credit crisis and economic downturn has hit mining especially hard, sending the UK mining index down 70% from a peak hit in May. Many smaller firms are struggling to survive, opening up a path for takeovers by rivals with cash.

The deals would likely be a mix of structures, with only a limited number of full takeovers, but would include taking strategic stakes, providing financing and technical capability and joint ventures at the exploration level, Terblanche said.

“I think you will probably see them wanting to stick to transaction structures they’re comfortable with, because they know they are potentially thin on the ground when it comes to management if they do full acquisitions of every single opportunity,” he said.

In exchange, the Chinese mining firms will insist on offtake agreements to insure a flow of future raw materials linked with China’s drive to build infrastructure amid a huge wave of migration into cities.

That would include commodities such as copper, nickel, iron ore, ferrochrome and coal, he said.

The Chinese firms will be able to count on financial support from institutions such as ICBC, the China Development Bank and an African Development Fund sponsored by China.

ICBC, the world’s largest bank by market value, injected $2-billion in fresh capital in Standard Bank when a deal was finalised in March for ICBC to pay $5,5-billion for a 20% stake in the bank.

Standard has expertise in emerging markets, especially Africa, as well as natural resources while ICBC has the balance sheet and clients, Terblanche said.

“It has had a lot of traction so far,” he said.

In August, Standard and ICBC arranged project financing for a planned $520-million copper/gold project in Tibet for Canadian-listed Continental Minerals.

Standard has also advised Zijin Mining Group and China’s top nickel producer Jinchuan Group - Reuters

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