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China Molybdenum saves China from outbound mining M&A slump in H1'16

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China Molybdenum saves China from outbound mining M&A slump in H1'16

Arecent report highlighted that China's outbound investments in the miningsector rose by a strong 18% year over year to US$4.49 billion in the first half.

However,what the joint report by law firm Baker & McKenzie and Mergermarket glossedover is that US$4.15 billion of this was from 's with and in thesecond quarter.

Puttingthe two deals aside, China — a major buyer in the global mining sector inrecent years — only announced four deals worth about US$340 million in thefirst half, while it recorded 10 deals of US$3.80 billion in the first half of2015.

The figures released by the report were all the moreworrying because the US$4.49 billion in deals for the first half were identicalto the figure for the second quarter, which effectively means there were noChinese outbound M&A deals of any numerical significance in value in thefirst three months of the year. There were six deals in the first half — ofwhich five were in the second quarter.

While it may be argued that the first quarter coincided withthe traditionally quiet Chinese New Year, that did not stop, for example,Zijin Mining Group Co.Ltd. from announcing a 9.9% stake buy in IvanhoeMines Ltd. in March 2015, or making an offer to in January2015.

AlthoughChinese mining majors have been relatively quiet in the market for the firsthalf, it seems market watchers are quietly hoping that the lull in marketactivity may be close to an end.

JohnMollard, global head of mining at Baker & McKenzie in Melbourne, said thatinterest among Chinese investor for mining assets seemedto have been reviving over the past six months, with metal prices bottomingout.

Globally,Baker & McKenzie said that financial investors as well as technology weredriving new deals in mining.

Financialinvestors were joining forces with sovereign wealth funds and hedge funds toseek opportunities, according to the report.

Mollardnoted that financial investors who preferred to avoid commodity risk in thepast have shown increasing interest in the sector.

"Specialistmining funds have appeared in Canada and Australia, and we've seen increased interest from the U.K. and otherjurisdictions," said Mollard, noting that Australia-based EMR Capital madeseveral acquisitions in the past 12 months, mostly in copper.

Meanwhile,additional funding is flowing into minerals essential to consumer-driventechnologies, such as lithium, as well as minerals related to batteries andelectricity storage, like graphite.

"Somemajor players are going to put additional development funding into theirlithium deposits," said Mollard, adding that there has been ongoingexploration around these mineral sands, especially in Africa.

RichardBlunt, partner in Baker &McKenzie'scorporate department, expected that the sectorwill see a possible turnaroundsoon after reaching bottom earlier this year.

"Itis not going to be quick but [we are] seeing optimism among corporates, some ofwhom have already rebuilt their balance sheets."

"Some are saying [the secondhalf] is going to be quite busy for mining deals and [they are] concerned [theywill] face more competition if they wait," Blunt said.