Quadra FNX chief executive officer Paul BlytheTim Fraser
China has balked on a billion-dollar joint-venture agreement with Canadian copper producer Quadra FNX Mining Ltd . to develop a project in Chile, citing financial jitters amid falling prices for the bellwether commodity.
The failed deal represents the first known casualty for a Canadian miner during the recent commodities correction, which has seen copper fall by more than 20 per cent in the past two months.
China's change-of-heart comes as its economy cools, which has led to a drop in the copper price as investors worry about falling demand.
China is the world's largest consumer of copper and its hunger for the metal was behind the deal struck in early March for a 10-per-cent stake in Quadra for $152-million, and a joint-venture deal for its Franke mine and Sierra Gorda development in Chile valued at about $900-million (U.S).
Quadra FNX said State Grid International Development Ltd., a division of the world's largest public utility company, wasn't ready to commit to the initial financing phase for the Sierra Gorda development in northern Chile before the permits were in place. The money would have represented about 10 per cent of the $2-billion cost of the project.
"Obviously they had a strategy and they couldn't make this work into that strategy," Quadra FNX chief executive officer Paul Blythe said in an interview Wednesday.
China's permitting concerns are surprising, given Chile's reputation as one of the world's most mining-friendly countries. Putting up funds before permits are finalized is also not uncommon in developing mining projects.
What's more, China is an aggressive buyer of resource projects in politically challenging places such as Africa and Afghanistan.
Shares of Vancouver-based Quadra FNX have fallen about 25 per cent since the deal was announced, alongside the price of copper, which analysts say could have been partially behind the deal's collapse.
Quadra FNX said it's still open to discussion with State Grid once a $40-million feasibility study is done later this year, but it's also free to negotiate with other parties.
"There's enough interest and enough different routes that we will find something that works for us in terms of financing the project," Mr. Blythe said.
While Quadra is better able to finance Sierra Gorda on its own after recently merging with FNX Mining Ltd., a partner is preferred.
"On a risk-adjusted basis it probably still makes sense to have a partner. You don't want to be scratching around for the last dime if you are executing on a project," Mr. Blythe said, citing countries such as Japan, South Korea and possibly still China as possible future partners.
Production at Sierra Gorda is expected by 2013 and has been forecast to be between 250 million and 400 million pounds of copper annually over 25 years.
Mr. Blythe said the timing is expected to remain on track.
He has also lowered his expectations for copper next year saying, " there is less probability that we will see $4 [U.S.]now."
The price of copper hit a high of $3.60 in early April - it's highest level since before the global financial meltdown. It has fallen since, down to about $2.80 last week, before bouncing back to around $3 on Wednesday.