A Chinese private equity firm is offering A$830 million ($848 million) for control of Discovery Metals Ltd. (DML), an Australian copper producer with mines in Botswana, in the latest push by a mainland company to secure access to overseas resources.
Cathay Fortune Corp., founded by billionaire Yu Yong, led an offer of A$1.70 a share in cash for the stock in Discovery it doesn’t already own, the Shanghai-based company said today in an e-mailed statement. The bid is 17 percent higher than Discovery’s closing price yesterday. Cathay Fortune holds 13.7 percent of the target, it said.
A slump in commodity prices and asset values has triggered renewed takeover interest in the mining sector, with Chinese companies targeting assets in Africa. Sichuan Hanlong Group is scheduled to complete a A$1.14 billion takeover for Sundance Resource Ltd. in December to gain iron ore assets in central Africa while MMG Ltd. in March bought African copper producer Anvil Mining Ltd. for C$1.3 billion ($1.31 billion).
“The offer seems fully priced -- the market has decided that commodities are coming off as China’s growth slows, so asset values are falling,” Chris Brown, a Brisbane-based resources analyst with RBS Australia, said by phone. “Unlike zinc, where the Chinese are a major producer, they’re not major producers in their own right in copper.”
Buying Discovery would give Cathay Fortune, which manages an investment portfolio of more than $3 billion, a copper-silver mine in western Botswana that produced first copper in July with a production capacity of 36,000 metric tons and 1.1 million ounces of silver annually.
Discovery Metals is evaluating Cathay Fortune’s takeover proposal and will respond after the board has considered its terms, the company said in a statement. UBS AG is acting as Discovery’s financial adviser, it said.
Commodity prices have declined as growth in China, the biggest metals consumer, cooled to the slowest pace in three years. The price of iron ore fell to a near three-year low last month following slowing steel demand growth in China, the largest importer of iron ore.
Arrium Ltd. (ARI), an Australian steel and iron ore producer, this week rebuffed a A$1.01 billion takeover offer from Noble Group Ltd. and Korean investors as too low.
“We look forward to engaging with the board of directors of Discovery Metals to progress our proposal,” Yu said in the statement. Cathay is “enthusiastic” about working with the board to develop and provide funding for the Boseto copper project, it said.
Cathay Fortune has investments in 14 different sectors in China, including resources and mining, according to the statement. The private equity firm, begun in 1997, owns 35 percent of China Molybdenum Co., the biggest domestic producer of the steelmaking raw material, it said in the statement.
Cathay Fortune would own 75 percent of the company if a deal was completed, with the remainder held by China-Africa Development Fund, according to the statement. Citigroup Inc. is adviser to Cathay Fortune.
Brisbane-based Discovery Metals gained 7 percent to A$1.455 yesterday. The company halted its shares from trading today ahead of a statement, it said.
Paul Fulton, company secretary at Discovery Metals, wasn’t immediately available for comment today.
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