From: Biniam Tekle (biniamt@dehai.org)
Date: Mon Oct 05 2009 - 08:19:54 EDT
"Another emerging market miner keen to expand into Africa is cash-rich
Chilean copper producer Antofagasta.
On Friday, it finalised a deal to pay $5 million for a 18 percent stake in
Sunridge Gold Corp, which is developing projects in Eritrea, and analysts
said more deals could be on the cards.
"It's very interesting to see Antofagasta wading into what most people would
have thought is a pretty obscure part of Africa," said Tim Williams,
director of mining and metals at accountancy firm Ernst and Young.
"I think that's quite a bellwether when you see such highly respected names
as Antofagasta beginning to invest in Africa, it also demonstrates, I
suppose, that all the easy-to-find stuff in South America has pretty well
been found."
New wave of African mining M&A tempered by risk
Reuters, Monday October 5 2009
* More M&A due as miners seek African mineral riches
* Activity may be dominated by emerging market miners
* Western major mining groups wary about political risk
* Rio, BHP expanding exploration programmes
By Eric Onstad
LONDON, Oct 5 (Reuters) - Mining firms digging for Africa's untapped riches
are attracting renewed interest, but takeover deals are likely to be
dominated by emerging market players that are prepared to assume greater
levels of political risk.
In contrast, Western mining giants, which have long held a presence in the
mineral-rich continent, have spent the last year weathering the economic
downturn and are expected to remain more cautious about taking on high-risk
deals.
Leading the charge have been top emerging market miners like
Kazakhstan-based ENRC Plc, West African-focused Randgold Resources Plc, and
South Africa's AngloGold Ashanti Ltd, which have all recently snapped up
small miners with rich assets in places such as the Democratic Republic of
Congo (DRC).
(For recent African mining M&A deals, see)
This compares sharply with the more cautious approach of major diversified
companies like BHP Billiton and Rio Tinto , both of which have chosen to,
instead, quietly expand exploration programmes into countries such as the
DRC and Zambia.
"I think we're on to the next wave (of M&A activity in the African minerals
sector), but it won't be a huge free-for-all that some people expect it to
be," said analyst Cailey Barker at RBC Capital Markets in London.
"There are a limited number of buyers and a limited number of decent assets
and companies up for sale."
Buyer scarcity is partly down to the need by companies such as Rio Tinto and
Xstrata to pay off the debt built up during previous buying sprees, while
other majors remain wary about political stability and the security of
mining licences -- an issue highlighted during the recent spat between
Guinea and Russian aluminium company RUSAL.
EMERGING MINERS
Miners from emerging nations were involved in the two biggest takeovers on
the continent recently, however, and seem much more willing to assume
increased political risk.
Kazakh group ENRC agreed last month to buy Central African Mining &
Exploration Co Plc (CAMEC) for $955 million while Randgold Resources,
currently operating in war-ravaged Ivory Coast, and South Africa's AngloGold
teamed up to buy Moto Goldmines for C$546 million ($502.8 million).
"I feel most of the acquisitions are actually going to be by people outside
of the majors, such as the Chinese and Indians," said Andrew Hayes, head of
mergers and acquisitions at Renaissance Capital.
"You've also got the Russians who were severely handicapped during the
downturn, but now they seem to be coming back. They're a lot more positive
about overseas acquisitions."
Renaissance advised CAMEC in the deal with ENRC, which has said it would
look for further acquisitions in Africa.
However, China, which needs to secure raw materials for a massive
infrastructure building programme, would likely continue to seek strategic
stakes and offtake deals rather than full takeovers since it is wary about
operating mines overseas, Hayes added.
Last month, a Chinese firm bought half of Weatherly International Plc, which
will allow the firm to reopen mothballed copper mines in Namibia.
Small- and mid-cap takeover targets for the emerging market miners could
include Southern and Central African-focused Metorex, Congo-focused Tiger
Resources and Sierra Leone-focused African Minerals.
First Quantum Resources, with a market value of $5 billion, could also be
attractive once it sorts out problems with the DRC government, which ordered
the closure of its key Kolwezi copper project last month, analysts said.
ANTOFAGASTA DIPS TOES
Another emerging market miner keen to expand into Africa is cash-rich
Chilean copper producer Antofagasta.
On Friday, it finalised a deal to pay $5 million for a 18 percent stake in
Sunridge Gold Corp, which is developing projects in Eritrea, and analysts
said more deals could be on the cards.
"It's very interesting to see Antofagasta wading into what most people
would have thought is a pretty obscure part of Africa," said Tim Williams,
director of mining and metals at accountancy firm Ernst and Young.
"I think that's quite a bellwether when you see such highly respected names
as Antofagasta beginning to invest in Africa, it also demonstrates, I
suppose, that all the easy-to-find stuff in South America has pretty well
been found.
"If you want copper, the number of places where you can go to get it are
pretty limited."
While this more than anything could bring diversified miners back as buyers,
for now, at least, most are happy to avoid big M&A action in favour of
boosting existing exploration plans.
Rio, which last year acquired exploration licences in the DRC from junior
firms that had been looking for gold and diamonds, converted the titles so
the firm could probe for iron ore, while BHP Billiton will start prospecting
in copper-rich Zambia this month.
"The potential rewards of resource development in emerging countries is
enormous," Eric Finlayson, head of exploration for Rio Tinto, told a mining
conference last week. "(However) this trade-off between prospectivity and
sovereign risk is one that faces the entire resource industry." ($1=1.086
Canadian Dollar) (Reporting by Eric Onstad; editing by Simon Jessop)
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