In September, The Globe and Mail reported that Vancouver-based First Quantum had hired bankers to fend off a potential takeover bid from Jiangxi Copper after the price of its stock had fallen over the past few months.CHINA STRINGER NETWORK/Reuters
An investment firm backed by Chinese state-owned Jiangxi Copper Company Ltd. has amassed a 10.8-per-cent stake in First Quantum Minerals Ltd., sending shares of Canada’s biggest copper miner sharply higher.
In September, The Globe and Mail reported that Vancouver-based First Quantum had hired bankers to fend off a potential takeover bid from Jiangxi Copper after the price of its stock had fallen over the past few months.
First Quantum later said it hadn’t discussed selling the company outright, but acknowledged it had held talks about selling a stake in its Zambian assets. On Thursday, the company said in a statement that in recent months it has been "in discussions with Jiangxi Copper regarding a possible investment in the Zambian assets of the company,” but there was "no certainty that any transaction will proceed.”
Clement Kwong, managing director of Pangaea Investment Management Ltd., the investment vehicle through which Jiangxi Copper is making its investment in First Quantum, said Jiangxi and First Quantum have engaged in talks about the Zambian assets for “a very long time,” but “nothing’s actually come of it.” He said that Jiangxi had concerns about uncertainties in Zambia, and the trade war between the United States and China that has weighed on the copper market has also given it pause.
“It’s been rather quite a rough ride in the past 12 to 18 months in Zambia itself," Mr. Kwong said, referring to a high-profile tax dispute between the Zambian government and First Quantum.
“And, of course, we have the global uncertainty around the trade war. A multibillion type of decision is a hard one to commit to in that kind of turbulence.”
Pangaea on Thursday said in addition to its 10.8-per-cent stake in First Quantum, it has entered an agreement to buy shares from an unnamed party to potentially increase its stake to 16.6 per cent. Under the deal, Pangaea can acquire First Quantum shares at $10.36 apiece, a substantial discount to the current price.
In a regulatory disclosure Pangea filed on Thursday, a standstill agreement rules out a takeover of First Quantum by Jiangxi Copper any time soon. Under the agreement, Jiangxi is prohibited from acquiring First Quantum outright until March, 2021, but it can amass as much as a 20-per-cent stake in the interim.
Mr. Kwong indicated that Jiangxi may be willing to take a much larger bite out of First Quantum over the longer term.
“It really depends on what happens with the market conditions," he said. “Should First Quantum [shares] suddenly fall in price by 50 per cent, making it an irresistible target, that would certainly drive us to maybe discuss with our strategic shareholder, Jiangxi Copper, ‘Hey, do you guys think you might be interested in taking a more strategic look at this asset.’”
RBC analyst Sam Crittenden wrote in a report to clients on Thursday that the investment from Jiangxi "could fuel further takeover reports” involving First Quantum.
Shares in First Quantum rose by 11.3 per cent on Thursday on the Toronto Stock Exchange to close at $11.10 apiece.
First Quantum is Canada’s biggest pure play in copper, with a market capitalization of $6.8-billion, but lately it has struggled.
The company spent about US$6.7-billion over the past few years building Cobre Panama, a massive new copper mine in Panama. It acquired the asset as part of the purchase of fellow Canadian miner Inmet Mining Corp. Cobre Panama, which analysts see as the company’s big growth asset, also accounts for much of its US$7.6-billion debt load.
Jiangxi, which has mining properties in China, Peru and Afghanistan, has been vocal about wanting to bulk up on copper assets.
Two years ago, the company's chairman said it planned to make acquisitions in Africa.
First Quantum operates two mines in Zambia, including Kansanshi, Africa’s biggest copper mine.
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