China’s Minmetals strikes again

Minmetals Resources, in which China’s state-owned Minmetals Group holds a majority stake, is flexing its deal-making muscle again with a friendly takeover offer for Anvil Mining (AVM-T, AVM-A), an Australian company with a copper mine in the Democratic Republic of the Congo.

The Chinese metal heavyweight, managed from Melbourne and headed by Australian dealmaker Andrew Michelmore, is offering $1.3 billion for Anvil in cash, or $8 per share and a
39% premium to the company’s closing share price on Sept. 29, with a 30% premium to its 20-day volume-weighted average price. 

The binding agreement was announced after markets closed, sending shares of the Perth-based copper junior up 33%, or $1.89, to close at $7.66 per share in Toronto with 23.3 million shares changing hands. Anvil has 157.7 million shares outstanding.

Minmetals has entered a lock-up agreement with Anvil’s directors, senior officers and metals trader Trafigura Beheer, Anvil’s largest shareholder. Together, the group holds 40.1% of Anvil’s outstanding shares on a fully diluted basis.

In 2010 Anvil produced 16,538 tonnes of copper contained in concentrate from its Kinsevere HMS processing operation 30 km north of Lubumbashi, the capital of Katanga province. In August it announced that it completed construction of the $400-million Kinsevere Stage II SX-EW plant, which is expected to produce 60,000 tonnes of copper cathodes a year.

Anvil also owns 70% of the Mutoshi project in Katanga province, 10 km east of Kolwezi. 

Mutoshi has been on care and maintenance since 2008’s third quarter, but a scoping study completed in 2009 examined the potential for transitioning Mutoshi in stages from the existing HMS operation to oxide open-pit mine feed SX-EW processing. 

The study indicated that potential exists for developing a large bulk-mining operation to process copper and cobalt deposits surrounding the old Mutoshi mine. 

Anvil states on its website that it plans to start a 33,000-metre infill drill program before year-end to define sufficient near-surface oxide copper and copper mineralization, and evaluate development options for Mutoshi.

Tom Meyer, a mining analyst at Scotia Capital in Toronto, believes the offer undervalues Anvil. But in a note to clients he also wrote that he didn’t anticipate a higher offer coming along, and recommends that shareholders tender to the bid. 

“We view Minmetals’ bid price as opportunistic, given the timing and the current discount between asset values from an industry player’s perspective and current market values,” Meyer wrote. “Many companies in our coverage universe are trading well below net asset values. In our view, the market is undervaluing productive capacity and we expect to see more mergers and acquisitions activity, should valuations remain depressed.”

Meyer also noted that in terms of timing, Anvil was still “early in the process of de-bottlenecking its flagship Kinsevere SX-EW mine and potentially expanding capacity further,” while at the same time, “a number of exploration opportunities had yet to be fully outlined.”

Meyer has lowered his one-year target price on the stock from $8.75 to $8.

Earlier this year, Minmetals was outbid by Barrick Gold (ABX-T, ABX-N) for Equinox Minerals, which has operations in Zambia and Saudi Arabia.

The agreement between Minmetals and Anvil includes a $53-million break fee payable by Anvil, and a $20-million reverse break fee from Minmetals.