China's largest nickel trader is taking a 15-per-cent stake in Royal Nickel Corp., a privately held junior miner led by a group of former Inco executives including ex-chief executive officer Scott Hand.
In a deal that highlights China's growing interest in Canadian nickel deposits, Ningbo Sunhu Chemical Products Co. Ltd. is investing $21.8-million in the Toronto-based company, which is developing the $1-billion Dumont nickel project in the Val-d'Or region of Quebec.
Mr. Hand, a Royal Nickel board member who was named chairman yesterday, said Sunhu will give the junior miner a strong Chinese partner with critical connections in Asia as well as financial support for future acquisitions. Sunhu is not a state-controlled Chinese company, but a private firm that trades and distributes nickel and other commodities in China.
"They've looked at how they want to grow their business. They've been a distributor and a trader of metals. Now they want to become an owner and an investor in actual mining operations in areas that they like," Mr. Hand said in an interview.
China represents a potentially massive source of new capital for Canada's junior mining sector, which has struggled to secure financing from traditional sources amid the credit crunch and global economic downturn.
The Asian country has been stockpiling nickel amid price weakness and Chinese companies have been making investments in junior Canadian nickel miners. In April, state-controlled Jilin Jien Nickel Industry Co. Ltd. acquired a majority stake in Liberty Mines Inc., which has operations in Timmins, Ont.
In July, China's giant sovereign wealth fund China Investment Corp. (CIC) invested $1.74-billion to become the largest B-class shareholder in Teck Resources Ltd., Canada's biggest base metals miner.
Many Canadian mining companies, however, remain wary of Chinese investment, fearing a loss of autonomy to the world's largest commodity buyer. Last month, Jilin Jien launched a hostile bid for Canadian Royalties Inc., which is developing a nickel mine in Northern Quebec.
Mr. Hand dismissed concerns that Canadian miners should be suspicious of financing help from Chinese companies, which have been snapping up mining assets to feed surging metals demand from China's rapidly expanding economy.
He said Sunhu is taking a multiyear view of its stake in Royal Gold, an approach that will give the small company stability while it develops Dumont, considers potential acquisitions and prepares for a possible initial public offering next year.
"I think if you want further mining development here in Canada, when you look at the [financing]scene, you want to look to people who are long-term investors and the trail takes you very quickly to people like Sunhu in China. Canada has to get used to that. It is a good development because I think they will be responsible investors," he said.
It has been more than three years since Mr. Hand oversaw the $19-billion sale of Inco to Brazil's Vale SA, the culmination of a frenzied takeover battle that saw both Inco and rival Falconbridge fall to foreign buyers. Inco shareholders accepted the Vale offer over a proposal to merge the Sudbury-focused nickel producers.
A U.S.-born corporate lawyer by training, Mr. Hand joined the board of Royal Nickel last year along with Inco's former head of marketing, nickel market guru Peter Goudie, as well as former Inco president and chief operating officer Peter Jones.
All three worked on the Sunhu deal.
In a related development, Tyler Mitchelson, a former Vale Inco executive, was named Royal Nickel's president and CEO yesterday.
Company founder and deputy chairman Tom Griffis said Royal Nickel is considering an initial public offering, likely next year.
"It comes down to a timing issue. When is the market primed for this type of opportunity and when is the project advanced enough that we can get optimum valuation on an IPO? So yes, we're going to look at that. I see 2010 as a viable option for us," Mr. Griffis said.