What do you do if you have access to cheap money? Look for things to buy, of course. Chinese companies have been on an overseas shopping spree, with the latest deals coming yesterday. Zijin Mining, listed in Hong Kong and China, is to buy just under half of Barrick Gold’s Porgera gold mine in Papua New Guinea, and a similar stake in Ivanhoe Mines’ Kamoa copper project in the Democratic Republic of Congo.
The deals make strategic sense. For the sellers, the disposals provide much-needed development capital. Barrick Gold’s balance sheet is burdened with more than $10bn of net debt, which it has pledged to cut by $3bn by the end of this year; the company’s net debt to equity ratio is more than 80 per cent. The PNG sale, together with that of its Cowal mine in Australia, which raised a further $550m, makes this target more feasible — especially after the first quarter’s negative cash flow dented market confidence.
Ivanhoe, similarly, needs money. Although the company holds net cash of more than $100m it has posted losses each year since its 2009 listing, burning through cash in the process. The first phase of Kamoa development will need $1.4bn. Zijin might provide as much as 65 per cent of this, giving it the option to take its stake in the mine from 49.5 per cent to 51.5 per cent.