Chinese companies eyeing bargain Canadian miners for gold, coal, copper and uranium

With recent purchase of C$1.74 billion stake in Teck as an example, Chinese metals producers are said to be looking at Canada's resource companies to tie in commodity supplies with key targets said to be gold, coal, copper and uranium.

Author: By Pav Jordan
Posted: Monday , 13 Jul 2009

TORONTO (Reuters) - -

China's purchase of a C$1.74 billion ($1.5 billion) stake in Teck Resources (TCKb.TO: Quote) may be just the opening move from the world's top resource consumer in a strategy to use its unique wealth advantage to become a key source of mining capital for Canadian firms.

Teck said last week it sold a 17.2 percent equity stake to state-owned China Investment Corp in a deal that allows the Canadian miner to pay down its massive debt while expanding China's portfolio of commodity investments.

The deal underscores how deep China's pockets are at a time when many sources of credit and financing have dried up in the global recession, even for the biggest miners.

"Most people thought China would take advantage of this dip in commodity prices and, because they're the only ones with money, take advantage of this financial situation we are in. They have come through big time, be it oil and gas, or any commodity you can think of," David Davidson, an analyst with Paradigm Capital in Toronto, said in an interview after the Teck deal was announced.

Teck is a major producer of copper, metallurgical coal, zinc and gold, all commodities sought by China.

"I think what they are looking for is distressed opportunities ... Companies who have a strong resource base that are suffering because of the lack of liquidity in the market," said Jack Azimi, managing director of Foundation Markets, a small investment firm in Toronto.

Azimi, who works with Chinese groups looking for opportunities in Canada, said the presence of Chinese and Indian firms is growing.

LARGER PRESENCE

Toronto's Prospectors and Developers Association of Canada convention in March was a somber occasion because of volatile metals prices and difficult financing conditions -- except for the Chinese.

"We met with one of the Chinese companies at the PDAC and they made it very clear that they would look at any project in Canada, so long it is of advanced stage," said Azimi.

"They are not interested in exploration. They want near-term production opportunities. They want a sure thing."

China's commodity push is not new.

In 2005, China's state-owned Minmetals failed in a bid for Canadian nickel miner Noranda, and has since been active in Canada in mostly smaller deals that have involved foreign assets.

Examples include Chinalco's [ALUMI.UL] 2007 takeover of Peru Copper, and the acquisition of Northern Peru Copper last year by a joint venture involving Jiangxi Copper Co Ltd (600362.SS: Quote)(0358.HK: Quote) and Minmetals.

This year, no takeover rumor in the Canadian mining space has been complete without mention of China.

A media report in April suggested Chinese mining firms were interested in copper and zinc miner HudBay Minerals (HBM.TO: Quote), then thought to be on the block.

China has pushed for years to own more of the resources it needs to feed its ravenous infrastructure growth. As the global economic crisis hobbled many competitors its position has become stronger, although not always as welcome.

"What we have seen in other areas is China expressing a desire and willingness to invest in resource assets around the world and being met in some circumstances with open arms and in some circumstances not," said Ernie Lalonde, a senior mining analyst with the DBRS ratings agency in Toronto.

Analysts say the Chinese are showing themselves willing to do different kinds of deals, from strategic investments like the Teck stake, to full 100 percent acquisitions or larger minority share purchases.

"They are diversifying their investment strategy," said Tom Whelan, head of Ernst & Young's Canadian Mining and Metals practice.

The China Investment Corp's pockets are said to be $200 billion deep, so it and other Chinese state entities are well placed to continue investing in Canada or elsewhere.

Key commodities they have their eyes on include coal, copper and uranium, analysts say.

Azimi said they are in the market for gold as well.

Chinalco has had preliminary co-operation talks with Canada's Ivanhoe Mines (IVN.TO: Quote), whose main asset is the Oyu Tolgoi copper and gold project in Mongolia, not far from the border with China.

And China has also been in talks with uranium giant Cameco Corp (CCO.TO: Quote) about a possible uranium supply agreement.

Of course, we aren't likely to know what the game's next move will be, or where China will buy next, until it happens.

"When people are in the M&A game, they get out of the cab two blocks before the building they are visiting, that's just the way it is," said one analyst who preferred not to be named.

($1=$1.16 Canadian)