Chinas leading metals companies, including its state iron ore buyer, are considering their next moves following BHP Groups blockbuster $39 billion approach for rival Anglo American, potentially the largest mining deal in over a decade. The worlds top consumer of commodities, including copper and iron ore, China and its regulators, play a key role in any global resources combination. In the aftermath of last weeks proposal, its mining companies are still trying to understand the exact configuration of a deal that is still in flux. That includes the impact on a tight supply of copper concentrate for the countrys smelters. An enlarged BHP could affect concentrate pricing, given the worlds largest miner uses an index provided by third parties and not an annual benchmark established through negotiation between leading miners and Chinese smelters. People working in and with Chinese metal companies said the scale of this new entity should an offer reach the finish line, after Anglos swift initial rejection would almost certainly mean asset sales, forced by regulators or initiated by the company, a potential opening for Beijing and its key miners. The people, who could not be identified as the discussions are private, said access to additional secure supply could help Chinas bargaining power at a time of fraying diplomatic ties with the West. It could also help efforts to safeguard a vast domestic processing and manufacturing industry, they said. Miners like Zijin Mining, China Minmetals and others are likely to examine closely a deal that creates the worlds top copper producer, the people said. But state iron ore buyer China Mineral Resources Group may also step in. Set up in 2022, it has struggled to achieve its official aim of increasing Chinas clout in the iron ore market, even with financial and domestic political support. The people said CMRG, given its role in iron ore, would likely participate in government discussions about the combination of BHP and Anglo. Assets including Minas Rio, in Brazil, could be among those that appeal. BHP has not signalled it would seek to sell Anglos high-grade iron ore operation but antitrust officials may force its hand. CMRG could potentially add metallurgical coal, copper or other strategic metals too. Chinas major miners have waded into mega mergers before. Aluminum of China, known as Chinalco, took a stake in Rio Tinto during BHPs ultimately unsuccessful 2007-2008 takeover effort. To get the combination of Glencore Plc and Xstrata approved a few years later, meanwhile, the trader and miner had to sell its Las Bambas project in Peru, after Chinas regulator raised concerns about excessive clout in the copper market, again fretting about concentrate. The deposit was bought by a group including China Minmetals MMG a year later, in 2014, for $5.9 billion. Indeed, antitrust action from China is almost guaranteed, legal experts have said. Chinas competition regime has undergone some changes in the decade since Glencores deal, but the basics remain - Beijings watchdog always considers the usual questions of market impact but also take a broad view of national security. That includes access to key strategic commodities. China is likely to be concerned about this deal, as it heavily relies on importing copper raw materials and the transaction would create the worlds largest copper supplier. To address these concerns, China may impose structural remedies as conditions for approving the merger, such as requiring the divestiture of assets, said Angela Zhang, associate professor at The University of Hong Kong and an expert on Chinese antitrust regulation. The Chinese government doesnt necessarily need to block the transaction outright, Zhang said. Instead, a simple delay in reviewing the transaction could provide the government with significant leverage, effectively holding up the transaction process.
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