China Molybdenum on the hunt for prime western mines

The Chinese miner that is paying $1.5bn for a group of Anglo American mines is on the hunt for more deals, believing the time is right to pluck prime assets from struggling western rivals.

China Molybdenum said it had more than $4bn available to acquire assets as it looks to expand its international business further after last week’s agreement to buy Brazilian niobium and phosphate mines from Anglo.

In an interview with the Financial Times, two of CMOC’s senior executives said the company had been “patient” in pursuing deals but believed the time was right in the commodities cycle to expand.

“We consider this to be the bottom of the cycle,” said Steele Li, executive chairman of CMOC.

The deal by CMOC is the largest in mining by a Chinese company this year and comes as some miners’ urgent need to improve their balance sheets may compel them to sell assets they would otherwise keep. Anglo, which sold the Brazilian mines as part of a widespread restructuring, is using the proceeds to pay down debt.

“Our strategy is to be ready,” said Kalidas Madhavpeddi, chief executive of CMOC International, who said the group was looking to buy high-quality assets “from people who do not want to sell them”.

“There have been others that we have passed on when we felt that the time was not right or when they were not tier one … we have been patient,” he said.

CMOC, which is listed in Shanghai and Hong Kong and has two large shareholders who together own 63 per cent of the company’s equity, already owns one of the world’s largest molybdenum and tungsten mines in China.

Its first overseas acquisition was in 2013 when it paid more than $800m for Rio Tinto’s majority stake in the Northparkes copper mine in Australia.

The deal with Anglo is CMOC’s first involving a Latin American asset and makes it one of the few players in the market for niobium, a metal used in alloys. CBMM, a private Brazilian company that sold minority stakes to Asian consortia in 2011, dominates the market.

Anglo’s mines also produce phosphate, a fertiliser. Mr Li said this would be an important diversification for the group and that CMOC would look for other deals involving industrial minerals. “Base metals are very volatile — industrial minerals give you good mitigation to the commodities cycle,” he said.

While some analysts have said CMOC paid a higher than anticipated price for Anglo’s assets, Mr Li said the deal was keenly contested. Anglo recently completed $325m of investment in the business to expand capacity, he said.

“We achieved a fair price for exciting tier one assets within their respective commodities … we were able to recognise true long-term value,” said Mr Li. “These assets are high quality in attractive markets … They are currently cash generative and based on conservative modelling, we expect them to double profit inside five years.”

CMOC’s two largest shareholders are Cathay Fortune, a Chinese private equity group, and Luoyang Mining Group, which is controlled by local authorities in the city of Luoyang in central China.


Article by James Wilson, © Financial Times

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