By Western standards, Minmetals Resources Ltd.'s $6.5 billion all-cash offer for Equinox Minerals Ltd. merits a short footnote in the history of corporate mergers and acquisitions. While transactions like this are above average in dollar amount, they aren't big enough to effect structural market changes and are usually quickly forgotten after a short while.
For Minmetals, though, the Equinox deal represents another piece in a gigantic puzzle China — yes, China, the country, and not its local businesses — is meticulously assembling as part of a broader plan to ensure its economy can maintain its strong growth rate and keep rivals at bay. While China may be concerned about its economy overheating, hence recent decisions to jack up borrowing rates, it still needs to keep workers busy and continue to improve its competitive position. To attain this goal, China needs raw materials, especially metals; and what China wants, it is increasingly able to afford today.
For the rest of the globe, though, China's voracious appetite for natural minerals is sparking a bidding war for control of precious global resources, including oil reserves and many of the metals used in the production of high-tech products. It may also result in other governments and national regulators keeping a closer watch on, and perhaps refusing to approve, transactions they believe could tilt the odds even more heavily in China's favor.
Minmetals' unsolicited bid for Equinox will no doubt attract interest from Australian regulators. The Chinese company made its offer contingent on Equinox dropping its own bid for copper miner Lundin Mining Corp. Equinox has said it is reviewing the Minmetals offer.
Australia has previously blocked mining transactions negotiated by other Chinese companies, and the Minmetals-Equinox deal could suffer the same fate if the parties fail to agree to regulatory conditions. Although Equinox is considered an Australian company, Minmetals is actually interested in the company because of its large copper holdings in Zambia and Saudi Arabia. With copper prices soaring, China needs to expand its interest in the market to guarantee supply for its growing manufacturing industries, including the high-tech sector, one of the major users of copper.
In case you are wondering, Minmetals is not just another Chinese mining company. The Hong Kong-traded company is part of a group of businesses focused on the production of metals such as aluminum, copper, gold, lead, silver, zinc, and other precious metals — businesses that are directly controlled by the Chinese government. Its parent company, China Minmetals Corp., is a multibillion-dollar enterprise founded in 1950 and “classified among the 39 key enterprises under the direct supervision of the Central government,” according to a statement on Minmetals' Website.
In an investor presentation, Minmetals said its offer for Equinox would be financed through “a combination of existing cash reserves, long-term credit facilities from Chinese banks, and equity, including financial investments in Minmetals by Chinese institutions. The proposed offer is supported by MMR's ultimate controlling shareholder, China Minmetals Corp.”
In other words, it helps to have a really rich parent.