TORONTO/MELBOURNE, (Reuters) – Equinox Minerals said on Thursday that Minmetals Resources’ C$6.3 billion ($6.57 billion) bid undervalued the company and was still a long way from being a formal offer.
China, which accounts for 40 percent of the world’s demand for copper, is on a mining acquisition spree and is chasing Equinox’s copper assets in Zambia and Saudi Arabia as prices for the red metal hover near record highs.
“We consider that the lowball price announced by MMR significantly understates our value and disregards the potential of this company, especially in light of the continuing strength in copper prices,” said Equinox Chairman Peter Tomsett in a statement.
Tomsett said no formal offer had been made, and nor was one expected for several weeks.
Equinox shares trading in Sydney eased 0.3 percent after the statement, but at A$7.46 remain well above the Minmetals C$7 per share offer, indicating investors expect a higher offer to emerge.
The shares in Toronto closed at C$7.50 before the statement came out.
Investors said it was possible rival bidders could emerge for Sydney- and Toronto-listed Equinox, but said they may be deterred by Minmetals’ financing power.
“There is still a way to go on this. It is not without the possibility that another party may come in and take a look,” said Northward Capital portfolio manager Michael Bentley.
“There are not a lot of copper assets like this around the world at the moment that have 40-year mine lives, and not a lot of new projects,” Bentley said.
While Minmetals has a market value of just $2.5 billion, the metals trading firm said its bid was being funded with credit from Chinese banks and equity investments by Chinese institutions.
The main attractions at Equinox are its Lumwana copper and uranium mine in Zambia, Africa’s third-largest copper mine by production, and the Jabal Sayid copper development in Saudi Arabia, due to start production next year.
Those mines could attract Xstrata , Antofagasta , Vedanta Resources and possibly Norilsk Nickel , analysts said .
Equinox noted that the bid by Minmetals — a state-controlled Chinese entity — will require the approval of China’s National Development and Reform Commission, which has yet to be received.
The Chinese bid also requires the approval of Minmetals’ own shareholders. While ChinaMinmetals Corp, Minmetals’ largest shareholder, has agreed to vote in favor of the deal, the vote will only be held after the NDRC approves the bid.
The Minmetals shareholders meeting is not expected to occur until sometime in June, Equinox said, adding that it can only respond to Minmetals after a formal offer is submitted.
It would be China’s fourth-biggest outbound M&A deal, according to Thomson Reuters data.
Equinox alleged in its statement that the Minmetals bid merely seeks to frustrate Equinox’s own bid for Canadian rival Lundin Mining . The Toronto-based miner contends that its offer for Lundin would add significant value for shareholders of both companies.
However, a senior Canadian M&A banker, who asked not to be named, said Equinox’s chances of clinching a deal with Lundin were extremely low in light of the Minmetals bid.
“I think that’s over. The thing about Equinox is they really stretched to go after Lundin financially. Their shareholders didn’t like it, their stock came off, and that put them right square in the sights of Minmetals,” he said.
“It was a bit of a miscalculation on their part because it exposed them to a hostile takeover, which is exactly what happened,” he added.