Chinese make move for Continental Minerals

After a long period of tire kicking, Chinese conglomerate Jinchuan Group decided to take the plunge and has made a friendly bid to acquire all of Continental Minerals (KMK-V, KMKCF-O) outstanding shares for $432 million.

Jinchuan currently holds an 11.78% interest in Vancouver-based Continental and made the move to acquire its flagship property the Xietongmen after initiating talks some 18 months ago.

The project sits roughly 240-km southwest of Tibet’s largest city, Lhasa, and since 2005 Continental has made two copper-gold discoveries there.

The first deposit hit upon was Xietongmen which currently has a measured and indicated resource of 219.8 million tonnes grading 0.43% copper, 0.61 grams gold and 3.87 grams silver for 2.09 billion lbs of copper and 4.31 million oz. of gold. The deposit had a positive feasibility study completed on it in 2007.

The second deposit, Newtongmen, has an indicated resource of 388.9 million tonnes grading 0.32% copper, 0.18 grams gold and 0.87 grams silver for 2.7 billion lbs of copper and 2.3 million oz. of gold.

In Toronto on Sept. 17, the day news of the acquisition was released, Continental shares touched a 52-week high of $2.62.

The $432 million cash offer breaks down to $2.60 per share, which represents an 18% premium to the volume weighted average trading price of Continental’s common shares over the last 30 trading days ending on September 14, 2010. Continental announced that third party was interested in acquiring the company on Sept. 15.

As part of the deal Jinchuan will likely end up paying somewhere in the neighbourhood of 10¢ per share prior to completion of the deal to compensate shareholders for the roughly $23 million left in Continental’s treasury.

The offer also comes with voting lock-up agreements with each of the directors and officers at Continental and certain shareholders.

While those shareholders were not named it is safe to assume that Jinchuan would be looking to attain such a commitment from fellow Chinese miner Zijin Mining, which holds roughly 13.7% of Continental and Taseko Mines (TKO-T, TGB-X), which holds 5.1% of the company.

Continental also agreed not to initiate discussions with other companies and Jinchuan has a right to match any competing unsolicited proposals.

One hurdle the deal will have over come before getting finalized, however, is that of Chinese regulatory approval. As has been seen in some other mining deals, such approval can be slow in coming.

Chinese firms need state approval when an acquisition involves funds leaving China. Approvals from both the National Development Reform Centre (NDRC) and the State Administration for Foreign Exchange (SAFE) will be needed before the deal can be consummated.

If the regulation hurdle is passed in a timely matter, Continental shareholders should be set to vote on the offer at a special meeting to be held in November.

An information circular containing detailed disclosure regarding the Arrangement will be mailed to shareholders sometime in October.

Continental is associated with the Vancouver-based and privately held Hunter Dickinson Group of mining companies.

Jinchuan is the largest national producer of nickel and platinum in China, accounting for roughly 90% of the country’s production. It also mines copper, cobalt and other precious metals as well as producing chemical products.