China Intent on Securing Long Term Metals Supply

On Sunday, the state-owned giant China Minmetals unveiled a friendly $1.7-billion deal to buy Australian miner OZ Minerals Ltd. (OZMLY.PK), the world's second-biggest zinc producer. OZ was in dire financial condition and was ripe for the picking.

According to TD Newcrest analyst Greg Barnes, the takeover is further proof that the Chinese government is intent on securing long-term metals supply. He noted that the implied takeout multiple in the OZ deal is 5.6 times 2009 EBITDA, which is similar to the valuation of Chinalco's investment in Rio Tinto Ltd. (RTP), which was announced last week.

He wrote in a note to clients:

The government does not seem shy about paying large multiples. We are somewhat surprised that the Chinese are acquiring OZ Minerals given that it is a large zinc miner, and China is not short zinc.

He added that the Chinese mining companies appear to view this market as an opportunity to secure resources. That being the case, there are plenty of distressed Canadian companies that could become targets; he singles out Teck Cominco Ltd. (TCK), Lundin Mining Corp. (LUNCF.PK) and Breakwater Resources Ltd. (BWLRF.PK) in his coverage universe. Teck is unlikely to be sold because of its dual share structure, but could get a cash injection similar to Rio Tinto, he noted.

China Minmetals tried to buy Noranda Inc. (NNDIF.PK) back in 2004 and met plenty of domestic opposition.

Comments

[HaavBline:]

Current Canadian goverment under Stephen Harper has been dealing with China with a hostile or at least snobbish attitude. The Australians, on the other hand, has been far friendlier. The Noranda blow-up did not help either.

Canadian companies will have to blame their prime minister if they find it difficult to get the Chinese to invest in them.

Feb 19 10:24 AM

[nova:]

Few points:
- Canada does not intend to become a Chinese colony. Consequently, Canadian government is smart defending and propecting its long-term interests.
- With the present collapse of worldwide economic structure, a new international "world economic order" will take place. In this environment, Chinese are very smart securing and expanding their long-term strategic interests.
- If the present trend will continue, very soon, the West (the USA and EU) will depend on China not only for supplies of general products but also for supplies of strategic materials vital to the West future development and even existance.
- Finally, Asians are very ruthless people. As soon as they will feel their opponents weakness, there will not be any mercy or any compasstion.

Feb 20 08:02 PM

[paulie:]

Regarding Harper and Canadian Corporate Policy: Harper is as far right as we've had here in a long time. He was uncomfortable last week with Obama, because they come from different universes fiscally and politically. Harper will continue to protect the interests of the Canadian Corporate Establishment he represents. Mining, fertilizer, oil and timber. The #1 by far: Mining. I am long on TCK for a myriad of reasons.

Feb 24 10:37 AM