China’s Minmetals strikes again

Minmetals Resources, in which China’s state-owned Minmetals Group holds a majority stake, is flexing its muscle again with a friendly takeover offer for Anvil Mining (AVM-T), a Canadian company with a copper mine in the Democratic Republic of Congo.

The Chinese metals heavyweight managed from Melbourne and headed by Australian dealmaker Andrew Michelmore, is offering $1.3 billion for Anvil in cash or $8 per share-a 39% premium to the company’s closing share price on Sept. 29 and a 30% premium to its 20-day volume weighted average price. The bid is not conditional on financing

The binding agreement announced after markets closed yesterday sent shares of the Montreal-based copper producer up 32.8% or $1.89 to close at $7.66 per share with 23.3 million shares changing hands. Anvil has about 157.7 million shares outstanding.

Minmetals has entered a lock-up agreement with all of Anvil’s directors and senior officers and with metals trader Trafigura Beheer, Anvil’s largest shareholder, who together hold about 40.1% of Anvil’s outstanding shares on a fully diluted basis.

In 2010 Anvil produced 16,538 tonnes of copper contained in concentrate from its Kinsevere HMS processing operation, about 30 km north of Lubumbashi, the capital of Katanga province. In August it announced that it had essentially completed construction of the $400 million Kinsevere Stage II SX-EW plant that is expected to produce 60,000 tonnes of copper cathodes a year.

Anvil also owns 70% of the Mutoshi project, 10 km east of Kolwezi, also in Katanga province. Mutoshi has been on care and maintenance since the third quarter of 2008 but a scoping study completed in 2009 examined the potential for transitioning Mutoshi in stages from the existing HMS operation to SX-EW processing of oxide open-pit mine feed. The study indicated that the potential exists for developing a large bulk mining operation to process copper and cobalt deposits surrounding the old Mutoshi mine. Anvil states on its website that it is planning to start a 33,000 metre in-fill drill program in late 2011 to define sufficient near-surface oxide copper and copper mineralization to enable evaluation of development options for Mutoshi.

Tom Meyer, a mining analyst at Scotia Capital in Toronto believes the offer undervalues Anvil. But in a note to clients he also said he didn’t anticipate a higher offer coming along and therefore recommends shareholders tender to the bid. 

“We view Minmetals bid price as opportunistic given the timing and the current discount between asset values from an industry player’s perspective and current market values,” Meyer wrote. “Many companies in our coverage universe are trading well below net asset values. In our view the market is undervaluing productive capacity and therefore we expect to see more M&A activity should valuations remain depressed.”

Meyer also noted that in terms of timing, Anvil was still “early in the process of debottlenecking its flagship Kinsevere SX-EW mine and potentially expanding capacity further,” while at the same time, “a number of exploration opportunities had yet to be fully outlined.”

Meyer has lowered his one-year target price on the stock from $8.75 to $8.00.

Earlier this year Minmetals was outbid by Barrick Gold (ABX-T, ABX-N) for Equinox Minerals, which has operations in Africa and Saudi Arabia.

The agreement includes a break-fee payable by Anvil of $53 million and a reverse break-fee of $20 million from Minmetals.