Focus on mergers and acquisitions of Chinese companies' overseas mineral resources

The shortage of mineral resources has become increasingly serious. The international community’s competition for mineral resources has also become increasingly fierce. In the decade from 2000 to 2011, the cross-border mergers and acquisitions in the field of mineral resources have been surging. 5.0% of the global cross-border mergers and acquisitions occurred in the mining, quarrying and petroleum industries (according to acquisitions). The average growth rate reached 15.5%. With the steady growth of China's economy, the dependence on China's mineral resources is also rising. Because the right to speak of the price of international mineral resources is still in the hands of the multinational mining giants in developed countries, the huge fluctuations in the prices of international mineral resources have made China's mineral resources companies miserable. Grasping more overseas mineral resources and ensuring the normal operation of the company has become a dream for Chinese mineral companies.

In 2011, China Petroleum & Chemical Corporation paid US$2.45 billion for mergers and acquisitions of Western Petroleum Corporation’s Argentine subsidiary and China Sinochem Corporation’s US$3.07 billion acquisition of the Norwegian national oil company, bringing the world’s attention to Chinese companies’ overseas mineral resources acquisitions. Increasingly warming. In the context of the gradual recovery of the global economy from the financial crisis, the active demand in emerging markets has brought about high prices for mineral products, and the mining and metals industry has led the economic recovery. Chinese companies holding a large amount of cash, from central enterprises to local enterprises, to sovereign wealth, have made their debut on the world stage and staged a spectacular overseas merger and acquisition of mineral resources.

Overseas mergers and acquisitions of mineral resources

According to statistics from Zero2IPO Database, from 2006 to the first half of 2011, the number of completed cases of Chinese overseas mineral mergers and acquisitions has reached 60, among which 56 cases of price disclosures totaled US$ 46.622 billion, and the average amount of mergers and acquisitions was 833 million. Dollars. From the data point of view, 2010 was the year of the most active year for Chinese companies in overseas mining resource mergers and acquisitions. A total of 16 mergers and acquisitions cases were completed in the year, achieving a total of US$9,027 million in mergers and acquisitions. However, since the amount involved in various merger and acquisition cases is generally small, the total amount of mergers and acquisitions in 2010 did not exceed 16.03 billion US dollars in 2009. In 2007, the price of international mineral resources increased significantly, and the cost of overseas mergers and acquisitions increased. As a result, the number and amount of overseas mineral resources acquired during the year declined. Since 2008, mergers and acquisitions of overseas minerals have increased year by year. In the first half of 2011, only seven months of overseas mergers and acquisitions of minerals were completed, and the amount of mergers and acquisitions reached US$6.551 billion.

Table 1 Annual Distribution of Overseas M&As by Chinese Enterprises in the First Half of 2006-2011

Time Cases Cases (Gold) M&A Amount (US$M) Average M&A Amount (US$M) 2006 7 6 8,223.40 1,370.57 2007 5 4 1,094.69 273.67 2008 11 11 5,723.28 520.3 2009 14 14 16,003.28 1,143.09 2010 16 14 9,026.54 644.75 2011H1 7 7 6,551.23 935.89 Total 60 56 46,622.42 832.54
Source: Zero2IPO Database 2011.08

Figure 1 Annual Distribution of Chinese Enterprises' Overseas Mineral Resources M&A in the First Half of 2006-2011

Focusing on the cases of mergers and acquisitions of overseas mineral resources by Chinese companies over the past five years, the overseas mineral mergers and acquisitions mainly have the following characteristics:

Focus One: Overseas Mineral Resources M & A

Due to the strategic characteristics of mineral resources and overseas understanding of China's market economy, Chinese companies can hardly acquire large-scale, high-quality mineral resources when acquiring overseas mineral resources. Judging from the mergers and acquisitions case in the past five years, Chinese enterprises have mostly small ore mines, poor mines, or mining companies that have very poor infrastructure. As a result, the amount of mergers and acquisitions of individual mineral resources is not high.

Focus II: M&A of Overseas Mineral Resources is dominated by large state-owned enterprises

The high investment and high risk of mineral resources production determine the natural monopoly of the industry. In the domestic market, large state-owned enterprises, especially central enterprises, have an absolute monopoly advantage. In overseas mergers and acquisitions, state-owned large companies with capital, technology, and management experience naturally take the initiative. Judging from the mergers and acquisitions cases that have taken place, the cases of mergers and acquisitions initiated by large state-owned enterprises account for a large proportion. In the field of energy and mineral resources, China Petroleum, Sinopec, and CNOOC are the three major oil companies. China Minmetals and China National Steel Corporation lead the mergers and acquisitions in the field of metal mineral resources.

Focus 3: The enthusiasm of mergers and acquisitions of overseas mineral resources has gradually increased

The huge fluctuation in the prices of international mineral resources has often led domestic enterprises that rely on resource imports into a passive situation, which has stimulated the desire of domestic companies to acquire more mineral resources. With the slow recovery of the financial crisis, the international mining industry has not broken away from the recession cycle. This has given domestic companies with stable market demand and large amounts of cash a good opportunity for overseas mergers and acquisitions. Since the third quarter of 2008, the enthusiasm of Chinese companies for acquiring overseas mineral resources has been rising, and Chinese companies have frequently gone out to sea to find suitable acquisition targets.

Focus four: Oil and gas industry is particularly active in mergers and acquisitions

The active overseas mergers and acquisitions of Chinese companies in the oil industry are closely related to the concentration of oil companies in China and the quality of domestic oil fields. The domestic oil industry has undergone many restructuring and integration. Currently, the oil resources are mainly concentrated in the hands of the three major oil companies such as Sinopec, China National Petroleum, and CNOOC. Relying on good domestic economic development trend and monopoly position in the industry, the strength of the three oil companies continues to increase. In 2010, the three oil companies Sinopec, CNPC and CNOOC ranked seventh, 10th and 252 respectively in the world top 500 rankings. Bit. Due to the scarcity of resources, as the global economy recovers, the competition for global asset ownership by resource companies in various countries will also increase. China, which has a strong economic recovery, is still in a period of industrialization and has huge demand for energy and mineral resources. In addition, because domestic oilfields have been exploited for a long time, the difficulty in mining has gradually increased, and the quality of crude oil produced has also declined, which has increased the cost of oil refining. Therefore, actively seeking overseas high-quality, low-cost crude oil is a common development strategy of the three major oil companies. Therefore, in 2011, the three major national oil companies have formulated active development plans, including the strategy of vigorously developing overseas markets through mergers and acquisitions and actively implementing the strategy of going abroad.