Minmetals Resources has withdrawn its $6.5bn offer for Equinox Minerals, a day after being trumped by Barrick Gold’s agreed C$7.3bn ($7.6bn) takeover bid for the copper miner.
The Chinese miner’s decision to avoid a bidding war clears the way for Barrick Gold to acquire Equinox, a Toronto-listed mid-cap miner whose value is based on a promising copper deposit in Zambia.
Minmetals’ prompt withdrawal is the latest twist in the saga of Equinox, which in February launched a takeover offer for a junior copper miner but was then pounced upon by two multinationals.
Minmetals made mistakes, according to bankers. But its role in the Equinox takeover also makes clear that China’s mining companies are an important force in today’s fierce competition for mineral deposits.
“The fact that Minmetals has walked away is a sign of sophistication,” said an Australia-based resources lawyer.
“Chinese state-owned enterprises are demonstrating increasing patience and more clear bottom lines in how they approach overseas investments.”
Minmetals, a subsidiary of one of China’s largest state-owned trading houses, said it was backing down because Barrick’s C$8.15 per share offer is too high compared to its C$7 per share bid.
“The price offered by Barrick is above our most optimistic assessment of value,” said Andrew Michelmore, chief executive and former chief of Australia’s WMC before its takeover by BHP Billiton.
Bankers say Minmetals angered Equinox management by not approaching them before announcing its intent to acquire the company . Minmetals lost further ground by waiting weeks to produce a formal written offer, according to bankers.
When Barrick unveiled its friendly deal on Monday, Minmetals was just 36 hours away from formalising its offer to Equinox, according to a person close to the deal. A second person close to Minmetals said the miner was prepared all along to raise its C$7-a-share offer to as much as C$8.
Minmetals’ backdown came as a surprise to markets, who were betting a better offer would emerge. The outcome is a blow to Minmetals’ ambitions to become a global base metals miner, although Mr Michelmore said the company would turn its attention to other projects in its “internal pipeline”.
Although Chinese resources companies have at times had a reputation of overpaying for assets in their rush to acquire, Minmetals’s move highlights the often cautious nature of state-owned enterprises when they do deals.
Chinese miners have been on the prowl for global assets but have a troubled history of going overseas. High-profile failures include Chinalco’s proposed $19.5bn investment deal with Rio Tinto that collapsed in 2009.
Minmetals’ decision to withdraw also suggests a more bearish view than Barrick on the copper price, which is driven by Chinese demand.
“If you are outside and looking at selling to China, you have a different perspective than if you are sitting inside China,” says Peter Markey, a partner at Ernst & Young. “They just can’t see how some of these Western companies are able to justify the prices they are paying.”
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