Comment

30 September 2004

China flexes muscles in mining deal

For $5 billion, China Minmetals Corp. is on the verge of a large foreign acquisition. It is Canadian mining concern Noranda Inc.

The Wall Street Journal reported the potential deal signals the ambition China has in parlaying its economic strength into major takeovers on the international stage.

State-owned China Minmetals popped up as a rumored suitor for Noranda during the summer. Noranda put itself up for sale earlier this year, spurred by 42% shareholder Brascan Corp., a Toronto power and real estate conglomerate, seeking to exit the mining industry.

The Chinese company has a fifty-year history, and it said it had revenue of $11.7 billion last year. In recent years, it has grown beyond its core metals-trading operations by focusing more on the production of copper, aluminum, nickel, and other metals, the company said. China Minmetals said it handled 40% of the copper and half of the alumina imported into China last year.

China Minmetals is “well positioned in the world’s largest and fastest-growing metals market. Together with Noranda’s management, expertise, technology and worldwide copper, nickel, and zinc operations, we have the potential to play an even bigger role in the global base metals industry,” said the company’s president, Miao Gengshu.

China Minmetals is the country’s second-largest firm in terms of overseas operations, with 44 subsidiaries in 17 countries and regions. The company’s Web site lists some interests quite removed from metals, including the Holiday Inn hotel in Wilmington, Del. It plans to create a chain of Holiday Inn hotels.

Noranda is a pillar of the Canadian mining industry, with roots going back seventy-five years. It is a major producer of copper, nickel, zinc, and aluminum, with major mines in Canada, Chile, and elsewhere and a 59% stake in Toronto nickel producer Falconbridge Ltd.

China over the years has made a series of acquisitions of natural-resource operations outside its borders, including investments in U.S. timber, natural gas in Australia, phosphate deposits in Florida, and some oil fields, said Nicholas Lardy, an expert on China’s economy with the Institute for International Economics in Washington. But China’s growth is set to cool in coming years after years of blistering expansion, which could lead to softer metals prices and mean the state-owned company “may be buying [Noranda] at a local high,” Lardy said.