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Canadian mining companies have become accustomed to Chinese companies swooping in to buy their properties soon after the sale sign is posted. A number of recent failed deals, however, suggest that China's appetite for mining assets is on the wane, posing major problems for companies like Labrador Iron Ore Royalty Corp which is looking to sell properties.
Reuters reported Tuesday that China's Hanlong Group had withdrawn from negotiations to buy a $4.7-billion (U.S.) African iron ore project owned by Australia's Sundance Resources, sending the latter's share price skittering lower by more than 50 per cent.
This is the fourth major mining acquisition that has been cancelled in recent months. According to the report, "China National Gold abandoned talks to take over African Barrick Gold, Chinese private equity firm Cathay Fortune Corp withdrew a bid for Discovery Metals and Chalco dropped its bid for a stake in Mongolia coal miner SouthGobi Resources."
Labrador Iron Ore may not experience as much difficulty spinning out its 15 per cent stake, whose value is estimated at $1-billion, in Iron Ore Company of Canada (IOC). But global giant Rio Tinto Group has already announced its intention to sell its (far larger) stake in IOC, and has yet to find a buyer.
Labrador's management will be hoping for an easier time than Inmet Mining Corp.. During Inmet's takeover by First Quantum Minerals Ltd., management failed to solicit a competing bid despite considerable effort.
All the recent signs point to a buyer's market for mining assets. Numerous companies are looking to sell, but the few firms financially strong enough to make acquisitions are too busy writing down the value of previous acquisitions to take any interest.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB .
Scott Barlow