China scouting for bargain mining deals

Friday, Dec 05, 2008

Standard Bank, which is 20 percent owned by the Industrialand Commercial Bank of China Ltd (ICBC), has been holding talks with Chinesemining firms, Thys Terblanche, head of mining and metals investment banking,told Reuters.

""We're spending a lot of time with ICBC and theirclients talking about opportunities for them,"" he said in aninterview on the sidelines of the Mines & Money conference in London.

""They are looking at 2009 and saying 'This is atime we see as a very big buying opportunity. We've got the backing fromgovernment, we've got the financial means'.""

Chinese mining groups would keep a strong focus on Africa,but would also probably seek out possibilities in Peru,Chile, Brazil,Australia and Indonesia,he added.

The global credit crisis and economic downturn has hitmining especially hard, sending the UKmining index down 70 percent from a peak hit in May. Many smaller firms arestruggling to survive, opening up a path for takeovers by rivals with cash.

The deals would likely be a mix of structures, with only alimited number of full takeovers, but would include taking strategic stakes,providing financing and technical capability and joint ventures at theexploration level, Terblanche said.

I think you will probably see them wanting to stick totransaction structures they're comfortable with, because they know they arepotentially thin on the ground when it comes to management if they do fullacquisitions of every single opportunity,"" he said.

In exchange, the Chinese mining firms will insist on offtakeagreements to insure a flow of future raw materials linked with China'sdrive to build infrastructure amid a huge wave of migration into cities.

That would include commodities such as copper, nickel, ironore, ferrochrome and coal, he said. The Chinese firms will be able to count onfinancial support from institutions such as ICBC, the China Development Bankand an African Development Fund sponsored by China.

ICBC, the world's largest bank by market value, injected$2.0 billion in fresh capital in Standard Bank when a deal was finalised inMarch for ICBC to pay $5.5 billion for a 20 percent stake in the bank.