Andy Hoffman

Globe and Mail Update Published on Friday, Oct. 16, 2009 6:52PM EDT Last updated on Monday, Oct. 19, 2009 7:39AM EDT

Glenn Mullan doesn't sound much like a CEO whose company just agreed to friendly takeover offer from a previously hostile suitor.

The chairman and chief executive officer of Canadian Royalties Inc. (CZZ-T0.78----%) wasn't hiding his discontent with the fact that China's Jilin Jien Nickel Industry Co. Ltd. won the Montreal junior mining company's support Friday with an improved all-cash takeover bid worth $192-million.

“I'm speaking as a shareholder primarily, and I'm very disappointed,” Mr. Mullan said in an interview. “As a founder, for me, it's the death of a dream.”

The friendly deal brings China's first attempt at a hostile takeover of a Canadian company to a close. Jilin Jien, which has quietly been amassing stakes in a number of Canadian nickel companies, launched a surprise unsolicited bid for Canadian Royalties and its Nunavik nickel project in August.

China has been on a commodities acquisition spree since the financial crisis erupted last fall, snapping up resource projects whose copper, nickel and iron ore is needed for a Chinese building boom.

As many Canadian junior mining companies, including Canadian Royalties, struggled to raise financing during the economic meltdown and credit crunch, a cash-rich China muscled its way into a slew of commodity deals.

Canadian Royalties was sideswiped by the financial crisis, which hit just as the company was trying to raise capital to build the $500-million Nunavik project in northern Quebec. It had to abandon a planned financing and put Nunavik on care and maintenance last year.

“The financial crisis left deep scars on not just people, but institutions and corporations. Canadian Royalties is probably a metaphor for what happened,” Mr. Mullan said. “We were left badly exposed in the aftermath of that.”

Jilin Jien's surprise August bid of 60 cents per share and $600 for each $1,000 principal amount of debentures was rejected by Canadian Royalties. But a special committee yesterday accepted the Chinese nickel miner's increased offer of 80 cents per share and $800 for each $1,000 principal amount of debentures.

Industry sources believe that Jilin Jien's hostile bid for Canadian Royalties was a test case that attempted to gauge the public and political reaction to an unsolicited bid for Canadian resource assets by a Chinese company. Due to its relatively small size, a foreign takeover of Canadian Royalties would not be subject to a review under the Investment Canada Act.

“To see the Chinese start to do that, even on a small scale, is an interesting signal point. … I think they got comfortable both on the political front and with the takeover rules,” one investment banker said.

Jilin Jien's offer expires on Oct. 27 and Mr. Mullan suggested there is an outside chance that another suitor could emerge or that shareholders could reject the offer.

“It's a sad day for Canada in a lot of ways. We saw Inco and Falconbridge disappear through acquisitions. It was very much our ambition to become a Canadian-based nickel producer. We were on our way and it's sad to see that that dream has gone. [Almost] all of Canada's nickel is controlled outside now,” he said.