Just a week after Vale (NYSE: VALE) unveiled a memorandum of understanding with one of China’s largest commercial banks for financing arrangements worth up to US$4 billion, Zijin Mining Group of southern Fujian province has agreed to acquire half of Barrick Gold’s (TSX: ABX; NYSE: ABX) Porgera gold mine in Papua New Guinea, as well as a 49% stake in Kamoa Holding Ltd., an Ivanhoe Mines (TSX: IVN; US-OTC: IVPAF) subsidiary that owns 95% of the company’s Kamoa copper discovery in the Democratic Republic of the Congo.
The flurry of deals underscore that while China’s slowing economy remains under pressure, and much of its political agenda caught up in a far-reaching anticorruption campaign, the appetite among its largest banks and most powerful mining companies for overseas mining deals appears to be hearty still.
Zijin Mining, which over the last two decades has become one of China’s largest gold producers and its second-largest copper producer, announced its deals with Barrick Gold and Ivanhoe Mines on the same day. In addition to gold and copper, Zijin has interests in lead, zinc, tungsten and iron ore. In December 2014, it also acquired a 9.9% stake in Pretium Resources (TSX: PVG; NYSE: PVG) for $81 million.
Under the deal with Barrick, Zijin will pay US$298 million in cash for a 50% stake in Barrick subsidiary Barrick (Niugini) Ltd. (BNL), which owns 95% of the Porgera joint-venture gold mine, and is its operator. The two companies also signed a long-term agreement outlining their intention to collaborate on future projects and joint investments.
Barrick said the proceeds will help pay down debt, and noted that the strategic partnership will create long-term value for all stakeholders, while Zijin said the deal fit its strategy of expanding business outside of China, and that Barrick not only has a “strong international presence” and “experience,” but also “many of the best assets in the gold industry.”
In addition, Zijin pointed out that the agreement gives Barrick “unrivalled access to the Chinese market, including distinctive engineering and construction management capabilities, and advanced technology.” Barrick commented that it also gets access to Chinese machinery, equipment and other suppliers, at competitive costs.
Under the new ownership structure, Barrick and Zijin will jointly control Barrick (Niugini) Ltd., which will have a joint Barrick-Zijin board of directors. The deal is expected to close by September.
Haywood Securities’ Kerry Smith commented in a research note that Zijin’s role in BNL’s management of the Porgera joint venture “is expected to grow over time, as the company gains experience operating in PNG.” Smith also points out that Zijin would be “a logical buyer at some point for Lumwana, and also the 262 million shares (64%) of Acacia Mining that Barrick owns today, which is worth US$1.2 billion.”
Meanwhile, across the Indian Ocean from Porgera, Zijin is beefing up its presence in Ivanhoe Mines and the DRC. In April, Zijin acquired a 9.9% interest in Ivanhoe Mines for a US$85-million investment. The latest deal sees Zijin acquiring 49.5% of Ivanhoe’s Kamoa stake for US$412 million in cash.
The Chinese miner also holds an option to acquire another 1% share — upon arranging project financing — for 65% of the first phase of Kamoa’s development costs.
The transaction is expected to close on July 31, at which time Zijin will pay US$206 million. The remaining US$206 million will be paid in five equal installments, payable every three months.
Zijin said more drilling will expand the resource at Kamoa. According to a preliminary economic assessment, 100,000 tonnes of contained copper in concentrate would be produced during the first phase of mining. Initial or preproduction capex for the first phase was estimated at US$1.4 billion. (So far Ivanhoe has invested US$337 million in equity capital in discovering and developing Kamoa.)
A proposed second phase would involve a major expansion of the mine and mill, and building a smelter to make 300,000 tonnes of blister copper each year.
Ivanhoe’s executive chairman Robert Friedland said in a prepared statement that with Zijin as a partner, the two companies “will examine the possibility of expanding the Kamoa project beyond the currently contemplated second phase of production.”
David Charles of Dundee Capital Markets said in a research note that the impact of Zijin’s investment is positive, “as it provides Ivanhoe much-needed financing.”
“Ivanhoe has been reviewing its options for a while now, and despite the exceptionally high copper grades at Kamoa, finding a partner to build such a large mine in a politically risky jurisdiction such as the DRC has proven to be doable, but nonetheless difficult.”
Charles points out that Zijin has “committed to use its best efforts to arrange or procure project financing for 65% (US$910 million) of the capital required to develop the first phase of the Kamoa project (US$1.4 billion), while the balance of 35% (US$490 million) of the required capital will be funded prorate by the shareholders.
“Ivanhoe will now turn its attention to Kipushi, which still requires financing,” Charles adds, noting that Ivanhoe plans to complete a National Instrument 43-101-compliant report on the project within the next month.
News of Zijin’s deal with Ivanhoe sent the company’s shares up 9¢, or 7.8%, to $1.25, with nearly 9 million shares traded. Barrick’s shares fell 3.7%, or 56¢, to $14.56 per share, with nearly 5 million shares changing hands.
Birds of a feather? And is Ivanhoe next? Like Barrick, Zijin Mining was excluded by Norway’s Council on Ethics http://t.co/CcELhaNepx