Chinese miner in $692m Indophil deal

MELBOURNE - Zijin Mining Group, China's third-largest copper producer, has agreed to pay A$545 million ($692 million) for Indophil Resources 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 per cent more than the last traded price, Melbourne-based Indophil said. Xstrata, 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 US$5.2 billion ($7.2 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 shareholders voted last November to allow the company to sell its stake in the project.

Fujian province-based Zijin, also China's largest gold producer, plans to increase overseas investment because the time is "still good," vice-chairman Lan Fusheng said in October.

The firm has spent US$300 million in the past five years on eight overseas projects, the executive said. Zijin holders approved a 7.5 billion yuan ($1.5 billion) debt sale on November 6.

"The scale and asset quality of Tampakan attracted us," Lan said yesterday. "We also value the experience of Xstrata in mining and dealing with the local community."

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

"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."

Tampakan may start in 2016, Indophil said in October.

The project is the largest undeveloped copper and gold deposit in Southeast Asia, according to the holding company Sagittarius Mines. Xstrata is the operator, with a 62.5 per cent stake, Indophil has a 34.23 per cent stake and Alsons holds the balance, according to Indophil's website.

Indophil has an agreement to buy Alsons' stake.

- BLOOMBERG