Minmetals Aims to Spend at Least $2 Billion on M&A, CEO Says

Jan. 28 (Bloomberg) -- Minmetals Resources Ltd., a Hong Kong unit of China's biggest metals trader, aims to spend at least $2 billion on acquisitions to build a global business as demand and prices surge.

"We will obviously start with our base in copper, lead, zinc and to some extent nickel" when weighing targets, Chief Executive Officer Andrew Michelmore said in an interview. The company may sell shares to help fund expansion, he said.

Minmetals completed a $1.85 billion cash and shares acquisition in December of parent company China Minmetals Group's Australian MMG unit, comprising the world's second- biggest zinc mine and other assets in Australia, Laos and Canada. Investment in base metals reached a record $1.5 billion last month, according to Barclays Capital, which forecasts copper to average 26 percent higher this year as demand increases.

China Minmetals has given "us a remit to go out and grow this business in the international market," said Michelmore, who previously headed MMG, formed when China Minmetals bought most of OZ Minerals Ltd. assets in 2009. "We would be looking to spend at least" the equivalent of the market valuation of Minmetals Resources, he said.

Minmetals Resources more than doubled in trading in Hong Kong in the last 12 months and has a market value of HK$15.5 billion ($1.99 billion). The London Metal Exchange LMEX Index of six metals has gained 28 percent in the past six months.

China, the world's largest metal consumer, spent a record $32 billion on mining and energy acquisitions in 2009. It faces increased competition from major global mining companies that are also seeking to secure supply for minerals from copper to coal.

Make a Difference

"It's got to be significant, it's got to make a difference," Michelmore said in a Jan. 25 interview from his Melbourne office. The company may also look at minerals sands, alumina, bauxite and uranium acquisitions, he said.

Minmetals Resources would pay a lot less than $2 billion for ore bodies that needed further exploration and development, he said. "You'd then spend the $2 billion actually developing them."

The parent company will allow the unit to sell as much as $1.6 billion of shares by July 31 to help pay a loan of $694 million, he said. Any share sale, which can only dilute the parent's 75 percent stake to 51 percent, will broaden the shareholder base to include institutions, Michelmore said.

"The funding will be done on case by case basis - if it's a small amount, we can probably do it out of our own cash flow and a small amount of debt facilities we could draw upon," said Michelmore. "If it's a much larger asset then again we could probably organize short-term financing through debt and then look at equity."

Zinc Mine

Minmetals Resources has loans with China Development Bank Corp. and Bank of China Ltd., he said.

The company's Century zinc mine in Australia's Queensland state, which produces 500,000 metric tons annually, remains set for closure in 2015, Michelmore said. The Dugald River zinc project may start up production in 2014 and is forecast to produce 200,000 tons of zinc and 25,000 tons of lead after applying for environmental permits, Minmetals said this week. A board decision is expected in the middle of this year.

The Avebury nickel operation in Tasmania remains suspended. "We have a concern about nickel prices - we don't want to open Avebury and then shut it again," Michelmore said. Prices would need to stay around current levels for the mine to reopen, he said. Nickel in London closed yesterday at $26,495 a ton.