The move of China National Metals and Minerals Group (China Minmetals) to acquire Noranda, the world's third largest zinc and ninth largest copper producer, may be on the rocks after the latter bought a 41 per cent stake in one of its subsidiaries.

"China Minmetals is still negotiating with Noranda over the acquisition," said Cheng Lijie, spokesperson of the Chinese State-owned company.

Toronto-based Noranda announced on March 9 it had bought a 41 per cent stake in its subsidiary Falconbridge, a merger expected to create one of the world's largest base metals miners.

Earlier reports said a deal between the two Canadian companies would likely make it impossible for China Minmetals to acquire the merged company as it would force the Chinese firm to pour too much money into the deal.

Dek Pannell, Noranda's chief executive, was quoted by the Dongfang Daily as saying that the company's senior officials and shareholders still hoped the deal with China Minmetals could be finalized soon.

Cheng said Noranda's purchase of 41 per cent of its subsidiary did not mean an end to talks and added that "no deadline had been set for the acquisition negotiations."

The two companies entered into negotiations regarding a preliminary proposal by China Minmetals to acquire all Noranda's outstanding common shares in September last year. The Chinese giant planned to spend some US$5 billion on the deal.

The acquisition, which would be the mainland's largest-ever takeover of a foreign company, is expected to help China Minmetals make strides in its globalization strategy.

However, as Noranda posted good figures in the fourth quarter of last year, insiders predicted it would cost China Minmetals much more to fulfill its goal.

"There is little expectation that China Minmetals can afford to bid for a major stake in Noranda-Falconbridge," according to an analyst familiar with the deal who declined to give his name.

However, no matter whether acquisition talks break down, both sides have pledged to discuss the formation of a strategic alliance.

Cheng said the ongoing negotiations might involve some commercial arrangements regarding the taking-over of certain development projects, as well as assistance with the procurement and supply of equipment and other products.

The talks might also be focusing on green field projects and joint exploration initiatives in China.

"China Minmetals is looking forward to building a robust working relationship with Noranda in an effort to cash in on the advantages of both firms," said Cheng.

She said China Minmetals and Noranda had explored a range of areas where co-operation might take place, but declined to give specifics.

Pannell also expressed his desire to see a co-operative relationship take shape.

The proposed acquisition of Noranda is only one step of China Minmetals' "go-out" programme.

The company is also in talks with another firm over co-operation in a copper mining project in Chile.

Chinese companies are increasingly looking for merger and acquisition opportunities overseas in line with the country's "go-out" policy.

According to statistics published by Dealogic,a world-renowned research firm, Chinese companies had clinched 43 overseas merger and acquisition deals by mid-October last year, four more than the figure for the entire of 2003. The total value of the deals reached US$1.93 billion, only US$270 million less than the whole sum of the previous year.

Source: China Daily