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Dragon on the M&A prowl raises eyebrows

By David Robertson

It hasn't just been diamonds that the Chinese have been buying lately. A report by PriceWaterhouseCoopers, the accountancy firm, found that Chinese investment made up 22 per cent, or $17bn, of all mining-sector mergers and acquisitions last year.

China's booming economy needs access to resources and the country has adopted a number of strategies to ensure that it has the raw materials needed to maintain its meteoric growth. Chinese mining firms have, for example, been active in securing rights to exploit resources around the world, particularly in Africa – not always in a manner that has endeared them to the international community.

China has also started buying stakes in foreign miners in the hope of securing long-term supply and it is these purchases that have given the country such a high profile in mining-sector M&A. Three of the 10 largest deals last year were by Chinese companies, including the largest – the $2.75bn purchase of Australia's Felix Resources by Yanzhou Coal Mining.

However, as the proposed $19.5bn investment by Chinalco, a state-owned metals group, in Rio Tinto, the world's second largest miner, demonstrated, this can be a controversial strategy. There was uproar in Australia over the Rio deal because it would have given the Chinese large stakes in strategically important Australian assets.

The plan was eventually scrapped and I suspect China realises that it will run into further opposition if its acquisition ambitions become too aggressive. So, while China will remain a fixture in the PriceWaterhouseCoopers survey the deals it will be securing are likely to be small in order to keep the furore to a minimum.


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