CHINESE trader Guangdong Guangxin Holdings has signed an $89 million deal to boost its interests in Australian base metals by buying a quarter of the Mineral Hill copper and goldmine in NSW and a 15 per cent stake in mine owner KBL Mining.
The Chinese state-owned GMR, which is the major shareholder of zinc miner Kagara and gold explorer Mungana, also will get the right to buy, at a 25 per cent discount, KBL's copper output from the mine.
The deal is the latest example of China taking advantage of a dearth of reasonably priced funding for smaller miners from traditional sources. If it goes ahead, it will boost the Chinese state-controlled holding in KBL, which until last month was called Kimberley Metals, to 24 per cent.
Investors reacted positively to the agreement, sending KBL shares 4c -- 17 per cent -- higher yesterday, to a three-week high of 27c, in their biggest one-day percentage move for the stock since it was spun out of CBH Resources early last year.
KBL executive chairman Jim Wall said Mineral Hill had always been short of capital and the funds would be used to mine deeper copper resources at the mine near Condobolin, in central NSW, and fund exploration.
"Institutions zipped up their pockets a long time ago. Most won't invest in asset with a market cap of less than $200m, so there is very little risk money because the European fiasco has made the markets very nervous," he said.
"In turn, there is a lot of interest from China. What we are seeing happen in the market has predominantly been in iron ore and coal but copper is also extremely important for development in China."
Under a "memorandum of framework co-operation" signed between the pair, Guangdong will pay $80m for a 25 per cent interest in Mineral Hill and the right to purchase all of KBL's subsequent three-quarter share of the mine's copper concentrate at a 25 per cent discount to London Metal Exchange prices.
Mr Wall said most of the $80m was forward payment for the copper concentrate discount, rather than the mine stake, but he would not provide a split.
Guangdong also will take a 15 per cent stake in KBL by paying $9.2m for 33 million new KBL shares at 28c each, which is a 25 per cent premium to the weighted average share price during the past six months.
This will dilute KBL's biggest shareholder, China's state-controlled lead company Henan Yuguang, to about 9 per cent.
Mineral Hill started production in September and is ramping up to an expected annual production of 5000 tonnes of copper in concentrate, 21,000 ounces of gold and 255,000 ounces of silver.
During the next 10 years, there is the potential to ramp up to eight million tonnes of copper a year.
The funds also will be used to help develop the Sorby Hills mine in the Kimberley region of Western Australia, where KBL is targeting an investment decision next year on a mine that would produce 25,000 tonnes a year of lead and 800,000 ounces of silver.
The Guangdong deal is dependent on Foreign Investment Review Board approval, Chinese government approval and a KBL shareholder vote.
source:chinamining.org