A Chinese-led consortium is preparing a potential bid to acquire Lundin Mining Corp. , marking the latest move by China to secure key mining and energy resources to feed its rapidly growing economy.
According to people familiar with the discussions, the buying group is headed by one of China's largest base metal miners, Jinchuan Group Ltd., and includes the country's giant sovereign wealth fund, China Investment Corp. (CIC) Jinchuan is China's biggest producer of nickel and cobalt and owns a variety of mineral properties in mining frontiers such as Africa and Kazakhstan.
Jinchuan recently signalled that it is on the hunt for mining properties in a variety of resource-rich countries, including Canada. Last year, it agreed to pay $432-million to buy Vancouver-based Continental Minerals Corp., which has a copper and gold project in Tibet.
Lundin, which has a current market value of about $4.9-billion, is currently in discussions with a number of potential buyers. The Chinese are the latest suitor to arrive at the table, and the consortium has been eyeing Lundin since February, when it became the target of a hostile takeover bid by Equinox Minerals.
The company could be worth as much as $11.70 a share in a takeover, or almost $6.9-billion, TD Securities analyst Greg Barnes estimated this week.
In a statement issued Friday morning, Lundin said it is continuting its "strategic process" to create shareholder value, but "there is no assurance that the strategic process will result in Lundin Mining entering into or consummating any transaction."
Speculation about a potential takeover drove Lundin's stock price up 82 cents to $9.16 in heavy trading shortly after the market opened Friday. More than eight million shares changed hands in the first hour of trading.
It is understood that a handful of U.S. and Canadian pension funds and private equity investors have also been invited to join the buying group. Sources said the Canada Pension Plan Investment Board was approached, but declined.
The Chinese group is drawn to Lundin's 24 per cent stake in the massive Tenke Fungurume copper and cobalt mine in the Katanga Province of the Democratic Republic of the Congo. The property ranks as one of the world's premier copper mines and its operating shareholder is U.S.-based Freeport-McMoRan Copper & Gold Inc. Lundin also has base metal properties in a variety of European countries.
A bid for Lundin would mark the second attempt in a month by a Chinese state buyer to acquire a Canadian-based copper miner with foreign mining assets. It would also represent a new chapter in a complex saga that began in January, when Lundin and Inmet Mining Corp announced a plan to merge.
The following month, Equinox unveiled a $4.8-billion hostile offer for Lundin, but that offer was derailed when China's Minmetals Resources Ltd. stepped in earlier this month with a bid to acquire Toronto-based Equinox. Then Minmetals saw its bid foiled this week when Barrick Gold Corp. swooped in with a richer offer that won Equinox's support.
The possibility of a bid for Lundin so soon after the Equinox failure shows an increasing level of confidence by Chinese buyers to adopt more aggressive takeover strategies in the takeover field.
The bidding wars have pushed the price tag for copper companies to new and unexpected highs, reflecting growing demand in China's booming economy for a mineral that is used for everything from electronic wiring to home construction. The price of copper has risen almost 50 per cent since mid-2010. The soaring commodity price is an inflationary threat to China, which consumes about 40 per cent of global copper production.