Minmetals chief seeks to step up a gear

Andrew Michelmore has a big job on his hands.

The chief executive of Minmetals Resources, a subsidiary of state-owned China Minmetals Corporation, wants to expand the company into a leading, mid-tier miner, of a size to rival Canada’s Teck Resources or London-listed Antofagasta.

“That is a hell of challenge,” he concedes. Last year, a move that would have taken the group one step towards its goal went awry. A $6.5bn hostile takeover bid for Equinox, the Toronto-listed copper miner, was trumped by Barrick Gold , who unveiled a surprise $7.7bn deal with the company.

Buying Equinox would have taken Minmetals about halfway towards its target. But Mr Michelmore is not deterred from dealmaking – far from it.

Hong Kong-listed Minmetals is at the forefront of a pack of Chinese mining companies who are scouring the globe for opportunities, trying to meet the needs of the world’s biggest consumer of commodities such as copper, iron ore and coal.

The country’s voracious appetite for raw materials has helped fuel the growth of global miners such as BHP Billiton and Vale. But China’s own state-owned mining houses, including Shenhua, Chinalco and Jiangxi Copper, have thus far had a limited profile overseas.

“We are transparent and nimble and rigorous,” says Melbourne-based Mr Michelmore, adding that Minmetals’ management must defend its analysis to the board of its Chinese parent as well as to regulators such as the National Development and Reform Commission. “We put in our best bid for Equinox – we thought we were going to get it. But when we were overbid by so much it was an easy decision for us. It was off the top end of the model.”

Minmetals walked away. “Competing with Barrick at these prices would, in our view, be value destructive for MMR’s shareholders,” the company pointedly said at the time.

His Chinese backers, who were providing debt funding for the deal, must be monitoring his forthright style with interest.

Not only did Minmetals go hostile – still unusual among Asian buyers – it had built a 4 per cent stake in Equinox on which the company eventually made a $150m profit, says Mr Michelmore.

Minmetals Group, primarily a metals trader, started expanding in mining about a decade ago. But it was the 2009 deal to buy Oz Minerals, where Mr Michelmore was chief executive, that paved the way for the current buying spree.

After the Australian government forced Minmetals to leave behind the sensitive Prominent Hill mine, the group put most of Oz’s assets into its listed subsidiary and kept much of the management team in place – leaving Mr Michelmore as the only foreigner spearheading M&A for a major Chinese miner.

Since the demise of the Equinox deal, Minmetals has sealed the $1.3bn purchase of Anvil , a copper miner with assets in the Democratic Republic of Congo.

“From getting access to the data room to having a board-supported bid in Anvil’s hands was six weeks, so we’ve certainly demonstrated that we can move quickly,” Mr Michelmore says, a nod to oft-repeated charges that Chinese companies move too slowly in M&A.

Quick decision-making is an advantage inside China too. “We see that as a competitive advantage because the Chinese companies compete for opportunities and they compete for access to funds,” he says.

Next on the agenda are purchases spanning copper, nickel, zinc and possibly bauxite and alumina.

“My preference would be to do something bigger,” he says. “You spend as much management time and effort on a $400m deal as a $4bn deal.”

Nor has he ruled out another hostile bid. “If the circumstances were the same,” he says. “We would prefer to do friendly . . . but if we had to, we would.”

Geographically, too, there are few areas off limits. “It is probably more where we would not go,” says Mr Michelmore. Venezuela, the Philippines and Nigeria are no-go markets. “Security of our people is number one. Security of title is number two,” he adds.

“Ultimately the best value would come through finding and developing your own ore bodies but that takes 10 to 15 years,” notes Mr Michelmore, pointing out that the company will consider earlier stage projects, including deposits that might be five or six years from production. “If you buy a full-blown operation, you’ll pay full market odds.”

Overpaying for growth is equally unacceptable to him and his Chinese bosses, especially as the country moves from a low-cost, export-led economy to a higher-tech model, or, as he puts it, “from ‘made in China’, to ‘created and developed in China’”.

“We still have to go through all the rigours,” he says. “It’s not like, ‘here is some money – go and spend it’. You have to argue for it.”

An international mindset on the board of Minmetals’ parent, including chairman Zhou Zhongshu, has put Minmetals ahead of the pack, says Mr Michelmore. “He trusts me – I understand that is something I shouldn’t take lightly.”