The remarks were made at Mines and Money London by Hongyu Cai, head of research at the Beijing-based investment banking giant.
She said Chinese companies and state-owned enterprises were principally targeting resources not found in large quantities at home. She mentioned copper, gold, graphite, and some minor metals (not specified).
“Chinese executives were looking for exposure to resources China doesn’t have. There was no interest currently in bulk commodities such as coal and iron ore,” said Cai.
“As far as jurisdictions are concerned, we are not particular, as long as there is no operational risk. More often than not [following a takeover], we are prepared to retain management on the ground … if they are capable.”
China was focused, she said, on asset quality, operations that were low on the cost curve, in production or near production, generating some free cash, or in late stage development with the prospect of free cash in the near term.
On the whole, the Chinese preferred big deposits and that meant many juniors were not on their wish list.
When it came to gold, the preference was for at least three-to-five-million-ounce deposits and copper resources had to be “in the billions of pounds in quantity”.
With that in mind, Cai threw in the revelation that the bank had looked at the two copper properties which Glencore had put on the auction block (Cobar in Australia and Lomas Bayas in Chile) only to conclude “these are not premium assets”.
She preferred not to discuss what she would see as Glencore’s premium assets, other than to mention the Las Bambas copper deal in Peru, struck with Glencore after the latter took over Xstrata and was forced to make disposals to get the merger through Chinese regulators.
Cai also took the opportunity to urge cash-strapped Western miners (with prospects) to look at tie-ups with Chinese firms, especially ones listed on the Shanghai or Hong Kong exchanges where it was easier to raise capital than in Toronto and Sydney, and valuations were more generous.
Questions from the audience revealed Chinese investors were not really interested in exercising influence over Western companies by acquiring their debt via the corporate bond market, or secondary markets.
That flowed from a lack of specialised knowledge in this area or, perhaps, the necessary sophistication that would enable Chinese entities to exploit potentially lucrative opportunities, when certain corporates found themselves in distress.