EQN Equinox Resources Limited

Minmetals Resources Ltd. (1208.HK) launched China's biggest takeover bid for an Australian-listed resources company Monday, saying it intends to make a C$6.3 billion (US$6.5 billion) offer for Zambia-focused copper miner Equinox Minerals Ltd. (EQN.AU).

The C$7-a-share cash offer by the Hong Kong-listed company complicates Equinox's hostile bid for Lundin Mining Corp. (LUN.T)--with MMR making abandonment of the offer a condition of its own deal going ahead--while simultaneously sparking hopes of a bidding war for Equinox.

Beijing has aggressively pursued deals for resources companies as it seeks guaranteed sources of supply. MMR's offer for Equinox, which is headquartered in Toronto and listed on the Australian and Toronto stock exchanges, would eclipse Yanzhou Coal Mining Co.'s (1171.HK) A$3.54 billion acquisition of Felix Resources Ltd. in late 2009, the largest Chinese takeover of an Australian company to date.

However, the rush of deals for Australian resources in recent years has alarmed many federal politicians who are sensitive to the country's main generator of export revenues increasingly falling into foreign hands. MMR is 75% owned by China Minmetals Corp., a state-owned company with interests in base metals, iron ore, steel and shipping.

An attempted US$19.5 billion investment in Rio Tinto PLC (RIO) by Aluminum Corp. of China Ltd. (ACH), or Chinalco, in 2009 fell apart amidst bitter political opposition and accusations that the government was "selling Australia".

Andrew Michelmore, MMR's chief executive, said the company had been looking at a takeover of Equinox for well over a year and already owned 4.2% of the company. It was moving now because it thought the Lundin takeover would be detrimental to Equinox.

"Timing is never ideal," he said. "We needed to go out today to give Equinox shareholders an alternative."

The acquisition will create a company that is the 14th largest copper producer in the world, based on forecasts for production in 2013. "This creates a globally-significant copper producer, it extends our mine lives and extends MMR into two new regions of the world," Michelmore said.

Copper miners have been engaging in a wave of mergers and acquisitions activity in recent months against a backdrop of record prices of the commodity. Equinox completed its takeover of Saudi-focused Citadel Resources Group Ltd. in January and moved on Lundin at the end of February, upsetting a mooted merger between Lundin and Inmet Mining Corp. (IMN.T).

Copper is used in applications such as electricity lines and air conditioners, which are heavily in demand in China due to the country's rapid urbanization and upgrade of its infrastructure. Three-month copper futures on the London Metal Exchange hit an all-time intraday record of $10,190/ton on Feb. 15, a doubling in prices in just 18 months.

Whether the deal goes ahead will now depend largely on the stances of two constituencies: Equinox's shareholders, and local regulators.

Shares in Equinox surged 28.7% on the Australian Securities Exchange after the deal was announced, climbing above the offer price to A$7.35, or C$7.35, as investors placed bets that the offer would need to be raised or would flush out other suitors for the company. MMR shares in Hong Kong rose as much as 2.4% at HK$6.72 per share in morning trade.

Equinox shareholders in Sydney rejected the bid as too low, arguing a cited 33% premium to Equinox's 20-day average share price ignored the fact that the company's stock had been depressed in the aftermath of its own C$4.8 billion offer for Lundin. The stock was around 8% below its pre-offer level on the eve of Monday's bid from MMR.

Ben Lyons, an investment analyst at Above The Index Asset Management in Sydney, said a price of up to C$10 could be justified on more bullish assumptions of the copper price. "We wouldn't be surprised to see an incredibly drawn-out struggle for control," he said.

Lawyers experienced with Australia's foreign investment process said the deal was unlikely to attract serious opposition from the Foreign Investment Review Board, since its main assets--the Lumwana copper mine in Zambia and the Jabal Sayid copper-gold project in Saudi Arabia--are offshore.

"(Equinox) doesn't have the same sensitivities as a resource play with Australian assets," said Malcolm Brennan, a special counsel for Mallesons in Canberra.

Michelmore said an application was lodged with the Foreign Investment Review Board on Mar. 11, and he expected no problems in winning the backing of Investment Canada, Ottawa's regulator.

Applications with China's regulators, including the National Development and Reform Commission, were also underway. They were not expected to complicate MMR's ambition to complete the deal by the middle of this year, Michelmore said.

-By David Fickling and David Winning, Dow Jones Newswires; +61-2-82724689; david.fickling@dowjones.com

-Joanne Chiu in Hong Kong and Edward Welsch in Ottawa contributed to this article.

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