Chinese Miner Makes Hostile Bid For Canadian Royalties

China’s appetite for natural resources has turned aggressive with an unsolicited takeover bid for nickel development company Canadian Royalties (CZZ-T, CRYAF-O).

Jien Mining Canada, which is jointly owned by Chinese state-controlled miner Jilin Jien Nickel Industry Co. and Canada’s Goldbrook Ventures (GBK-V, GBKVF-O), has offered $148.5-million in cash for all of Canadian Royalties’ shares and debentures.

Since the start of the world financial crisis, Chinese companies have been investing heavily in base metals and oil projects around the world, but until now, most deals have been friendly.

Canadian Royalties is advising its investors to hold onto their shares and debentures until the company has had a chance to review the offer. Unless extended, amended or withdrawn, the offer will be open until Sept. 15. Canadian Royalties says its board will make a decision by Aug. 26.

Both Goldbrook and Canadian Royalties have nickel-copper-platinum group metals projects in northern Quebec’s Ungava region, near Xstrata’s (XSRAF-O, XTA-L) Raglan nickel mine.

Canadian Royalties originally aimed to start production at its Nunavik nickel project by mid-2010, with the goal of producing 26 million lbs. nickel in concentrate, 38.8 million lbs. copper in concentrate, 900,000 lbs. cobalt in concentrate, 14,500 oz. platinum and 78,600 oz. palladium per year over nine years with the potential to extend the mine life to 18 years.

But last August, the company announced that construction of the $466-million project would be delayed: Canadian Royalties couldn’t secure a needed $250- million credit facility because of the world financial crisis.

Under the terms of the offer, Jien is willing to pay 60¢ per Canadian Royalties share; for every $1,000 of principal in debentures, it will pay $600, plus accrued and unpaid interest. Two-thirds of the shares must be tendered for the deal to go through.

The offer represents a 28% premium for Canadian Royalties shares based on the volume-weighted average trading price for the previous 20 trading days ending Aug. 6, and a 122% premium for the 7% convertible debentures. The debentures were issued in March 2008, are due on March 31, 2015 and are convertible at $2.75 apiece.

Jilin Jien has already invested in several other Canadian nickel projects. It has the option to earn a 50% interest in Goldbrook’s Raglan nickel-copper-platinum group elements project by funding $45 million worth of exploration over three years. Jilin Jien recently increased its stake in Victory Nickel (NI-T, VNCKF-O), which has projects in Manitoba and northwestern Ontario, to 18.9%. It also scooped up a 51% stake in Liberty Mines (LBE-T), which owns the McWatters and Redstone nickel mines southeast of Timmins, Ont.

At presstime, Canadian Royalties shares were down a penny at 57¢ on a trading volume of 1.1 million shares. The company has a 52- week trading high of $1.23 and a low of 15¢.