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| Jinchuan | |
| Size | R9.112 billion acquisition of Metorex |
| Advisers | Goldman Sachs (Jinchuan), Standard Bank (Metorex) |
| return to the Middle East and Africa Deals of the Year index | |
Further south, the standout M&A deal of the year was Chinese company Jinchuan’s R9.112 billion ($1.02 billion) acquisition of Metorex. It told us a lot about the changing nature of Chinese acquisition in resource-rich Africa.
Metorex is a Johannesburg-listed metals and mining company whose main attraction is its range of copper and cobalt assets in the Democratic Republic of Congo and Zambia. In 2011, after sifting through a number of bids, the board recommended to sell to Brazil’s Vale, on condition that Metorex disposed of its interests in a copper-processing facility in Zambia.
Ordinarily, that would have been that. “Vale had the deal sewn up except for one or two elements of detail, one being shareholder approval,” recalls Brad Webber at Standard Bank in South Africa, Metorex’s adviser. “Everything else was done and dusted.”
And then in came Jinchuan Group, a Chinese mining company. In July 2011 it stormed in offering a 21% premium to the Vale offer. Getting over the finish line would take until January 2012, hence its inclusion in this year’s write-up, but in the moment of that audacious bid the usual rules of Chinese engagement had changed.
“What was phenomenal for us was to see the Chinese entering into a competitive process and taking an extremely aggressive approach to the transaction,” says Webber. “Pricing was neither here nor there; there was a number they had to beat and they beat it significantly. A lot of Chinese companies don’t like competitive processes, because they don’t like pressurized due-diligence processes, and they don’t like to lose in deals.” Indeed, Chinese buyers tend to be notorious for agreeing to a due-diligence timetable and then seeking repeated extensions of it as they fastidiously check their asset. This approach was dramatically faster and more boisterous.
It was all the more surprising because one could hardly find a more complex theatre in which to buy. “The deal had substantial complexities given that it involved two competing offers in a complex approval regime covering multiple jurisdictions,” says Webber. “Both processes required 75% shareholder approval, numerous third-party and joint-venture-party consents and South African, Zambian and DRC regulatory consents.”
Expecting to accept the Vale offer, Metorex was already well advanced in disposing of the Zambian asset. And on top of that, this was the first offer to be made under the new South African Companies Act, with no precedents for a competing-offer scenario. The deal required approvals and consents in Zambia and the DRC from joint-venture partners, ministers and regulators during a period of political uncertainty: both Zambia and DRC were amid presidential elections, in Zambia’s case leading to the swearing in of a new president. And all of that’s before considering the Chinese regulatory approval processes; these alone took four months.
“It was extremely challenging,” says Webber. Gécamines, the DRC state mining company, “has in the past caused lots of issues in transactions, and ultimately you need its approval in the deal. The Chinese approached that in a very open-minded way and were willing to engage with the company.”
The deal did get away and Jinchuan got its asset. A Chinese company, with the state behind it, is perhaps particularly well placed to deal with the many complexities of Congo mining: both political and in terms of labour and infrastructure. And for Metorex, says Webber, “it was perfect timing: the copper price was at an all-time high then, there were multiple bidders”.
Has it changed the nature of Chinese M&A in Africa? Well, in January China showed that it’s still prepared to walk away from a deal if the metrics aren’t right. China National Gold pulled out of talks to buy a majority stake in African Barrick Gold, which owns four mines in the north of Tanzania. Chinese miners will be aggressive, it seems, but not at any cost.
