Chinese Private Equity Firm Offers £527m for Copper Miner

on Oct 4, 2012

In a further push by China to secure access to African copper resources, Shanghai-based private equity firm Cathay Fortune Corporation, has launched an all-cash offer for Discovery Metals (ASX:DML), that values the Botswana-focused copper miner at A$830 million (£537 million), The Financial Times reported on 4 October 2012.

In a statement on Thursday, Cathay Fortune announced that it had teamed up with China-Africa Development Fund (CADF) to offer A$1.70 (£1.08) per share to acquire all outstanding shares of the Australia-listed copper miner. The offer price represents a premium of 17 per cent on Wednesday’s close, and 51 per cent over the volume-weighted average price for the previous 30 days. Yu Yong, the billionaire founder of Cathay Fortune, said quoted by the FT, that the proposal offered “compelling value to all shareholders of Discovery Metals”. He added that Cathay Fortune and CADF value the “high quality” of Discovery Metals’ senior management team.

!m[](/uploads/story/522/thumbs/pic1_inline.png)China Development Bank has committed a credit line to help Cathay Fortune fund the large bid. According to its statement, the Shanghai-based company also has regulatory approval from the National Development and Reform Commission, China’s economic planning agency. Greg Seeto, Discovery Metals’ secretary, said the company is evaluating Cathay Fortune’s bid and will respond after the board has considered its terms. If a deal was to be completed, Cathay Fortune would own 75 per cent of the copper miner, with the reminder held by CADF.

Cathay Fortune has more than $3 billion under management and invests in sectors including telecommunications, air transport, finance, automation and natural resources. Notwithstanding its diverse portfolio, the private equity firm’s latest takeover attempt was tagged as unusual by analysts because Cathay Fortune lacks experience in direct mining operations, which may affect the company’s ability to control and develop Discovery Metals’ main asset, the Bosteo copper project in Botswana. Unlike the state-owned enterprises that have driven most of China’s investments in African resources, the Shanghai-based firm is privately owned, which also makes the bid unusual.

Yet, Cathay’s bid comes as no surprise considering how China is covetous of Africa’s rich and untapped bounty of copper resources. China, which accounts for nearly 40 per cent of global copper consumption, has been on the prowl for mining investments in Africa. The world’s second-largest economy increasingly needs copper as it continues to expand and upgrade its industry, and demand is forecast to remain strong despite the recent signs of slowing in Chinese economic growth rates.

The takeover offer for Discovery Metals is the latest in a series of deals between Chinese firms and overseas copper miners. Earlier this year, CADF and China Guangdong Nuclear Power agreed to buy Namibia-focused Kalahari Minerals (LON:KAH) and Extract Resources (ASX:EXT) for about $2.3 billion (£1.4 billion). China also gained access to copper reserves in the Democratic Republic of Congo through a C$1.3 billion (£818 million) deal between state-controlled Minmetals Resources and junior copper miner Anvil Mining (TSE:AVM).


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