VANCOUVER

ANDY HOFFMAN
RTGAM



VANCOUVER - With a bold and politically savvy $6.3-billion hostile bid for Canada's Equinox Minerals Ltd., China is signalling it is ready become a major player in the battle for global resources assets.

The $7 per share offer for Toronto-based Equinox by China Minmetals Corp. is the first time a Chinese company has made an unsolicited bid for a major Canadian resource company, marking a significant shift in strategy and tactics by government officials in Beijing.

The proposed takeover fits strategically with China's desire to control large-scale mining projects, but also demonstrates a new high-level of political shrewdness.

Despite the rapidly growing Chinese economy's insatiable appetite for commodities, state-backed firms have long been wary of bidding for control of major Canadian mining firms, fearing that Ottawa would block such transactions under the Investment Canada Act.

Indeed, Minmetals backed away from takeover talks with Toronto-based Falconbridge in 2004, sensing there was little political support for Chinese ownership of the company's flagship nickel mining assets in Sudbury.

Now, however, China has found a Canadian target that is unlikely to create a political uproar.

Equinox's most significant asset is a copper mine in Zambia and the company has no major projects in Canada.

China already has a well-established presence in Africa, where it has invested billions in roads, rail and other infrastructure projects as it funds the development of massive mining and oil projects that will produce the commodities it needs.

Equinox is based in Toronto, but its chief executive officer and other top management are based in Australia.

Equinox is listed on the Toronto Stock Exchange in order to gain access to the capital available from the resource-focused Canadian market as it built the Lumwana mine.

Sources said Minmetals has been eyeing Equinox and its growing copper assets for more than 2 years.

Minmetals' hostile bid follows Equinox's own unsolicited takeover offer for Vancouver's Lundin Mining Corp. If successful, the Chinese bid for Minmetals would scupper Equinox's attempt to acquire Lundin and leave that Canadian miner in charge of its own destiny, at least for now.

"Our offer for Equinox aligns with Minmetals' strategy for growth, enhancing our global production portfolio. For Equinox shareholders, the offer is compelling in that it not only provides a substantial premium and certainty of value, but it also provides a superior alternative to the proposed acquisition by Equinox of Lundin," Andrew Michelmore, Minmetals' CEO said in a statement.

While well-capitalized Chinese state-backed firms such as Minmetals have been aggressively seeking foreign resource acquisitions, political hurdles and opposition to Chinese state investment have stymied many of these attempts.

China's major oil and gas companies including Sinopec have elected to take minority positions in Alberta oil sands projects rather than risk the political opposition of a full takeover of major domestic assets and companies.

Chinese firms have been reluctant to be too aggressive in their pursuit of foreign firms following the collapse of CNOOC's $18.5-billion bid for California's Unocal in 2005 amid a firestorm of political opposition.

But with its hostile offer for Equinox, Minmetals' Chinese owners appear to have found an entree into the international merger and acquisition that should be politically palatable in Canada and in China.

Still, the move marks a major departure for China and could face tough scrutiny in Ottawa.

"This will have been examined and approved at the highest level. It should be viewed as China flexing its muscles. Quite profound," said a veteran Canadian mining executive not involved in the proposed takeover, who spoke on the condition of anonymity.