Zijin Agrees to Buy Indophil for A$545 Million Cash

By Rebecca Keenan

Dec. 1 (Bloomberg) -- Zijin Mining Group Co., China’s third-largest copper producer, agreed to pay A$545 million ($500 million) for Indophil Resources NL to gain a stake in Southeast Asia’s largest untapped copper and gold deposit.

The Chinese company offered A$1.28 a share in cash, 18 percent more than the last traded price, Melbourne-based Indophil said today in a statement. Xstrata Plc, the Australian company’s largest shareholder and the majority owner of the deposit that it shares with Indophil, accepted the offer, according to a separate filing.

Zijin may have to contend with attacks by local guerrilla groups that killed a worker and delayed work on the undeveloped $5.2 billion Tampakan copper and gold project in the Philippines. China, the biggest metal consumer, wants to own deposits to guarantee supply and limit exposure to rising commodity prices.

“China would have to satisfy itself that if it supported a development it would have the security of tenure and ability to operate in a safe work practice environment,” said Grant Craighead, a mining analyst at Sydney-based Stock Resource. “China needs security of supply and it is putting its foot on as many assets as it can.”

Indophil rose 11 percent to A$1.20 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Indophil shareholders voted last November to allow the company to sell its stake in the project. Zijin climbed 6.5 percent to close at HK$8.65 at 4 p.m. in Hong Kong.

Indophil is being advised by Gresham Advisory Partners Ltd., Freehills and Baker & McKenzie. Zijin is being advised by Charltons Hong Kong and Minter Ellison. The offer is subject to Chinese and Australian regulatory approvals.

Guerrillas, Protesters

Fujian province-based Zijin, also China’s largest gold producer, is planning to increase overseas investment because the time is “still good,” Vice Chairman Lan Fusheng said Oct. 22. The company has spent $300 million in the past five years on eight overseas projects, the executive had said. Zijin holders approved a 7.5 billion yuan ($1 billion) debt sale on Nov. 6.

“The scale and asset quality of Tampakan attracted us,” Lan said today. “We also value the experience of Xstrata in mining and dealing with the local community. We’ll continue to seek acquisition opportunities in other countries, such as Africa.”

Tampakan is located on Mindanao island in the Philippines and has been targeted by guerrilla groups and protests by illegal miners. An Xstrata contract worker was shot dead and two others injured near the project in December last year in an attack blamed by the police on communist guerrillas.

‘Basket Case’

“Indophil is out on Mindanao and that’s your problem,” Stock Resource’s Craighead said. “You have a good deposit there that everyone knows is attractive, it’s significant scale and it’s material to the Chinese. Politically, it’s a basket case.”

Tampakan may start in 2016, Indophil said in an October presentation.

The project is the largest undeveloped copper and gold deposit in Southeast Asia, according to the holding company Sagittarius Mines Inc. Xstrata is the operator, with a 62.5 percent stake, Indophil has a 34.23 percent stake and Alsons Corp. holds the balance, according to Indophil’s Web site. Indophil has an agreement to buy Alsons’ stake.

It will produce an average of 340,000 metric tons of copper and 350,000 ounces of gold annually for 20 years, Melbourne- based Indophil said on April 22, citing a study by Xstrata, the world’s fourth-largest copper producer.

Xstrata last year abandoned its own A$545 million cash bid for Indophil and then later blocked an offer backed by Crosby Capital Ltd. and management.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net