Trucks are seen at a copper mine of Jiangxi Copper in Dexing, Jiangxi province, China, in December, 2015.CHINA STRINGER NETWORK/Reuters
Canada’s First Quantum Minerals Ltd. has reached an agreement with Jiangxi Copper Co. Ltd. that significantly curbs the power of its major China-based investor and makes Jiangxi Copper far less likely to act as a mergers and acquisitions kingmaker.
The company has an 18.5-per-cent stake in First Quantum FM-T. Its investment predates restrictions introduced by Canada’s federal government that severely limit investment into Canadian critical minerals companies by entities tied to the Chinese state. Jiangxi Copper is the largest copper smelting company in the world and is part-owned by China’s Jiangxi province.
Under a new agreement announced by First Quantum on Tuesday evening, Jiangxi Copper has agreed not to increase its stake or, conversely, dump large quantities of shares without the consent of the Canadian copper miner. The agreement, which will last for the next three years, also allows First Quantum to dictate who Jiangxi Copper can sell its shares to if the transaction is for a 5-per-cent stake or more. And the agreement prevents Jiangxi Copper from selling to a buyer who would amass more than a 9.9-per-cent stake in First Quantum.
The standstill offers a significant level of added protection for First Quantum that wards off the likelihood of Jiangxi Copper or another third party suddenly amassing a significant stake that could leave First Quantum vulnerable to a hostile takeover. The Vancouver-based company has been the subject of fervent takeover speculation ever since its market value collapsed last year following an order from Panama that forced it to close its biggest mine, located in the country.
The new standstill agreement between First Quantum and Jiangxi Copper also prohibits the Chinese shareholder from going against the wishes of First Quantum’s management in major board decisions, including who is allowed to sit on the board. Under the pact, Jiangxi Copper will be allowed to nominate one board member, a right it currently doesn’t have.
Industry Minister François-Philippe Champagne said in late 2022 he would only allow acquisitions of Canadian critical minerals companies by state-owned enterprises under exceptional circumstances. The move was motivated in large part by China’s relentless incursion into critical minerals that has seen the Asian superpower carve out a dominant global position in battery minerals such as lithium, copper, cobalt and graphite.
Since unveiling the policy, Mr. Champagne has blocked several proposed M&A transactions involving China-based companies attempting to take significant equity positions Canadian critical minerals companies.
Ryan MacWilliam, the chief financial officer of First Quantum, in a interview said that while Ottawa did not play any role in drawing up the standstill agreement between the Canadian miner and Jiangxi Copper, his company drafted it with “geopolitical sensitivities” in mind and kept the government informed during the process.
“Clearly some of the protections and guardrails, and solidifying this relationship, making sure there’s clarity and transparency in respect of it, we’ve done that to be sensitive to the times we find ourselves in,” he said.
In addition to the new standstill agreement with Jiangxi Copper, First Quantum has an existing shareholder-rights program that kicks in if any individual shareholder amasses a 20-per-cent stake. That makes a creeping takeover of the Canadian miner impossible. (A creeping takeover is the slow accumulation of shares in a target over a long period of time.)
Late last year, First Quantum was forced to close its Cobre Panama mine after Panama’s Supreme Court declared the company’s mining contract was unconstitutional. Earlier in 2023, demonstrations against the mine attracted thousands of people and huge international media attention. The environmental impact of Cobre Panama, located in a densely forested area, emerged as a major issue for citizens, particularly as the country endured its worst drought in decades.
In the aftermath of the mine closure, investors fretted about the long-term viability of First Quantum, which is carrying a major debt load from the construction of Cobre Panama. Those concerns were alleviated significantly in February after the company raised billions in a debt and equity financing package.
Jiangxi Copper was among the equity investors who purchased additional shares in a US$1-billion bought deal unveiled as part of the financing. The China-based investor also agreed to a US$500-million prepayment agreement to purchase copper from First Quantum from its Kansanshi mine in Zambia.