VANCOUVER AND TORONTO

BRENDA BOUW AND TIM KILADZE
RTGAM



VANCOUVER AND TORONTO - China's bold bid for Equinox Minerals Ltd. is unlikely to face resistance by Canadian regulators, but investors are signalling it won't get by shareholders at its current price.

Markets are betting China Minmetals Resources Ltd. will have to boost its $6.3-billion offer in China's first attempt at a hostile bid in Canada's mining sector. Already, Equinox's share price has surged past the $7-a-share offer.

And if rival bidders emerge, China can't be underestimated, said analyst David Cotterell at BMO Nesbitt Burns. "The low cost of Chinese capital means they can go a lot higher than other Western companies if they got into a bidding war."

Some believe China's deep pockets and hunger for commodities to feed its frenzied industrial growth will lead to a higher offer by Minmetals. Copper is a widely used metal for everything from cars to construction to power, and China is signalling it has a bullish outlook for the metal because the level of its offer implies a copper price of more than $3 per pound, according to analyst estimates. That is well ahead of consensus forecasts of about $2.50 per pound for 2015 and beyond.

Equinox's shares soared 32 per cent to $7.55 on Monday, 55 cents higher than Minmetals' bid. Most analysts believe Equinox shareholders will reject the deal in its current form.

Securing ownership of Equinox would be Minmetals' first investment in the promising African copper belt and the Middle East, but the Chinese miner insists the foray is consistent with its long-term growth plans. These plans include extending its production profile to beyond 2030, and more than doubling its exposure to "the attractive fundamentals of the copper market."

Equinox's Lumwana copper mine in Zambia is already in production, and the company recently acquired the Jabal Sayid copper project in Saudi Arabia through its takeover of Citadel Resources. That deal provided the company with a near-term production asset, something that is highly coveted because global copper supply is so tight.

Even though Zambia and Saudi Arabia are considered by some as politically risky places to operate, China has the cash and the international muscle to handle almost any potential issues. And because it has the clout, China adopted a new strategy with this deal by going hostile. Historically, Chinese state-backed firms engaged in slow-paced, friendly deals.

Equinox does not have any assets in Canada. As such, analysts expect the deal won't face trouble getting approval from Investment Canada. Still, regulators are currently assessing whether a full review is required; the Act mandates approval is required for any takeover of companies with assets totalling more than $300-million. Equinox easily meets that test.

Minmetals' offer is only valid if Equinox drops its $4.8-billion hostile bid for Lundin Mining Corp. Lundin has rejected the bid because it claims the bid is too debt-heavy, given that Equinox will tack on $3.2-billion in loans for the acquisition. However, some bankers believe China will still want to get its hands on Lundin's 25-per-cent ownership of the Tenke Fungurume copper project in the Democratic Republic of Congo. The asset is controlled by copper behemoth Freeport-McMoRan, which means there is a strong balance sheet behind it.

Equinox's bid for Lundin was set to go to a shareholder vote on April 11. With another bid on the table, the pressure is off Lundin to find another potential bidder for some or all of its assets. In fact, some analysts believe there is now a greater likelihood that the company could remain as is.

Lundin CEO Phil Wright said the hostile bid for Equinox wasn't surprising, and that it doesn't change his company's plans to review options for its own assets, a process it started last week when its merger deal with Inmet Mining Corp. was cancelled in part because of the Panamanian government's push for a costly change to the power supply option at Inmet's flagship asset.

"We will still continue to move ahead with a considered review of all alternatives. If we have something of value to come back to shareholders with, we will do that," Mr. Wright said in an interview Monday.

Lundin is said to be considering a wide range of options, including selling off its near 25-per-cent stake in the promising Tenke Fungurume copper and cobalt project in the Democratic Republic of Congo. Analysts say the company could get the best value for shareholders by selling Tenke. Interested parties may include Freeport-McMoRan Copper & Gold Inc., which is a partner with Lundin in Tenke and holds the largest stake. Other state-owned Chinese firms are also said to be eyeing Lundin's assets, which also include copper, zinc, lead and nickel at its mines in Portugal, Sweden, Spain and Ireland.

With files from Barrie McKenna