In Commodity News 02/06/2015
While most mining and steel companies are still striving hard to survive the lingering bleak business climate, some state-owned Chinese firms in the field are gearing up to explore more supply sources of quality mineral materials by carrying out overseas acquisitions at lower costs, Guangzhou’s 21st Century Business Herald reports.
One such firm is the Zijin Mining Group. Following more than one month of suspension, the firm resumed trading on the Shanghai stock exchange on May 27, with its share price rallying to the daily ceiling limit on the publicity of a capital increment plan designed to finance its overseas acquisition projects.
Under the plan, Zijin Mining will amass close to 10 billion yuan (US$1.6 billion) in fresh capital by issuing 2.42 billion shares at a unit price of 4.13 yuan (US$0.66). Of the new funds, 2.51 billion yuan (US$405 million) will earmarked for acquiring the Kamoa copper mine in DR Congo; 1.82 billion yuan (US$293 million) to buy the Porgera gold mine in Papua New Guinea; and 3.22 billion yuan (US$519 million) for investing in the Kolweizi copper mine, also in DR Congo, among others.
On May 26, Zijin forged strategic partnerships with Ivanhoe Energy and Barrick Gold, both based in Canada, to jointly develop the Kamoa copper mine and Porgera gold mine.
The Kamoa cooper mine is one of the three core mineral assets of Ivanhoe, boasting total copper ore reserves of 24.16 million tons. If Zijin Mining acquires the Kamoa copper mine, the acquisition will be the largest one of its kind ever recorded by Chinese enterprises.
The Porgera gold mine is now 95% controlled by Barrick, currently the world’s largest gold producer, and has gold mine reserves of 285 tons, ranking 36th among global gold mines still under production.
Through the acquisitions, Zijin can sharply boost its mineral ore resources to support the firm’s long-term development. The firm’s gold mine reserves will rise by 10.09% to 1,476.88 tons from 1,341.50 tons, and its copper ore reserves will surge from from 15.43 million tons to 26.79 million tons.
Industry insiders said that it really pays for Zijin to realize the two acquisition projects at comparatively low costs.
The lingering sharp decline in the prices of international mineral products has not only made domestic mineral traders and mining firms suffer a long “chilly winter,” but also made some international mining giants mired in financial woes.
One of them is Fortescue Metals Group (FMG), the No.3 iron ore operator in Australia. The Wall Street Journal reported that the company’s net debts amount to US$7.5 billion for a debt ratio of nearly 100%, giving the firm a “catastrophic” financial crisis to face.
Heartening news for the company came out recently, when on May 24, Australia’s Financial Review reported that China’s largest steelmaker Baosteel Group and China CITIC Bank had applied to the Australian government for allowing FMG to undergo capital restructuring as they would like to acquire the company.
Baosteel is now the largest customer of FMG, absorbing up to 63% of its iron ore supply. Baosteel’s plan to acquire FMG is not beyond the expectation of industry insiders. But one unnamed domestic metal analyst opined that Baosteel should reconsider the timing for the potential acquisition.
