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Not tonight: China turns to African mining deals in response to frosty reception in Europe

“Not tonight.” Young clubbers often think that these words from door staff can ruin a night out on the town. However, the most dedicated party animals know well that you can always find an alternative, as long as you are willing to accept that it might not be the party you thought you were going to.

The EU started ramping up foreign direct investment (FDI) regulations in 2019 and applying the new rules from 2020. Following the change, Chinese investors have increasingly found unsmiling door staff in the EU and the UK instead of red carpets. An analysis by this news service showed that the UK, Germany and Italy used FDI rules to kill 14 deals last year, with many of the bidders coming from China.

Instead of feeling disappointed and looking for a taxi home, Chinese investors have increasingly considered alternatives. Mining businesses in Africa appear to be beneficiaries of the unfriendly welcome in Europe, according to Dealogic data.

Notable deals included Sichuan Road & Bridge, which acquired a 50% stake in Colluli Mining, an Eritrea-based potash mining company, in a deal valued at nearly EUR 130m; and Sinomine’s USD 180m acquisition of Zimbabwe lithium specialist Bikita Minerals last year.

Meanwhile, Yahua International Investment and Development bought 70% of Seychelles-based companies SSC AFRIQUE and INDUSMIN Africa for USD 145.3m in total, giving it an interest in four lithium mines in Namibia.

Despite the changing nature of the deals, Chinese outbound activity into Europe, the Middle East and Africa (EMEA) has maintained a steady pace between 2020 and 2022, with deal value between the three years averaging EUR 6.1bn and deal count of 99 per year.

Deals to be done

Tech features heavily in the list of European deals hurt by FDI rules, but careful dealmakers can still get past the door staff in this sector and many others. Non-strategic trophy assets such as football clubs and properties are a significant exception, with the Chinese government discouraging deployment of capital in these areas.

“There are some European businesses looking to sell to Asian bidders,” one sector banker said, adding that access to Asia, including China, is a key plank to many companies' growth strategies.

Chinese investors are also keen to strike deals in Europe whether in healthcare, industrials and the consumer sector, as well as tech if it looks likely that regulators will sign off on the deals. “There’s still a lot of things to do – it’s just whether you are looking at the right direction,” the banker said.

An example of a successful tech deal last year was the sale of Dutch semiconductor manufacturer Ampleon to Chinese peer Wuxi Xichan Microchip Semiconductor for EUR 1.45bn.

Sedimental value

While the overall environment for Chinese investors across Europe is likely to remain unfriendly for the time being, Chinese investors will continue to deploy capital in more welcoming jurisdictions. Securing minerals that can be used in batteries also helps with the government's strategic planning around carbon neutrality.

Miners in Africa seeking new investors are likely to continue to benefit from this trend. Mergermarket's proprietary intelligence has identified a number of targets this year, including Si Mining, a Mali based mining exploration company, which plans to raise between USD 10m and USD 20m, as reported.

Similarly, Abu Tartour for Phosphoric Acid, an Egyptian mining company, is ready to discuss approaches from new minority investors to finance its phosphoric acid project, as reported. That company is looking to raise a total of USD 1.2bn with a 65%-35% debt-to-equity split, which will mean a USD 420m equity raise.

Others include Masabi Gold, a mining project in Tanzania, which is looking to raise around USD 15m to fund drilling and development effort, as reported. The owners will consider both equity and debt funding options to explore and develop the project.

Expect Chinese investors to keep taking the road to Africa instead of confronting intimidating door staff with black belts in Europe.