Caution Urged within China on Overseas M and A Deals

Mining & Minerals - Evaluations / Other Metals

Date posted: 05/11/16

MES reports that given the affordable price and its geographical advantages, Tenke had been eyed for acquisition by other Chinese companies as well, Mao noted. China Molybdenum took action very fast, he said. U.S. consultancy Deloitte noted in a report in August 2015 that Chinese buyers used to be far more enthusiastic about energy sector merger and acquisition (M&A) deals overseas, but now they are only interested in assets that the country needs such as copper and gold. Persistent downward pressure on commodity prices has given Chinese companies an opportunity to invest overseas, but they need to be cautious and take the right measures to avoid potential risks, analysts said on Tuesday. As prices of commodities such as copper and crude oil have been declining in recent years, buying foreign companies that have been struggling financially is a good choice as the price is relatively favorable, copper mining analysts told the Global Times Tuesday, shortly after China largest molybdenum producer announced it was buying a controlling stake in a copper mine in Africa. Roughly 80% of the Chinese overseas mining deals have been unsuccessful, and domestic firms have become more cautious about investment in Africa, South America and the Middle East, media reports noted. The failure of the deals was mainly caused by a lack of proper consideration of the potential risks in the local culture, politics and environment in other countries, Shen Sheng, a lawyer at Rainmaker Lawyer, a Beijing-based law firm focused on mining and energy, told the Global Times on Tuesday. Chinese firms should learn from their Japanese counterparts, some of which also actively invested in mines overseas in the 1990s, Mao noted. Some of them, unlike more bold Chinese buyers, bought smaller stakes in overseas mines rather than purchasing them, in order to stabilize the corporate management and operations, he said.