Jiangxi Copper, which has been in talks with First Quantum about its Zambia copper assets, is a key stakeholder in new major First Quantum shareholder Pangaea Investment Management. PIM has 10.8% of First Quantum and an option to go to more than 16%.
Investment bank Jefferies says while most equity investors have been unwilling to buy copper-miner shares because of cyclical risk and big diversified miners have also been reluctant to entertain copper M&A due to "a high level of risk aversion and a focus on austerity and capital returns", Chinese groups were doing deals in the space.
"The timing is brilliant, in our view," Jefferies said.
"We do not believe Chinese state-backed companies are concerned about near term cyclical risk. Their focus is more likely on the strategic benefit of controlling large-scale copper resources for decades via acquisitions at low prices during a weak point in the cycle.
"Based on its accumulated equity interest in First Quantum, PIM/Jiangxi may be interested in making a move on all of First Quantum, which would include Cobre Panama as well as the Taca Taca project in Argentina and the Haquira project in Peru. While we do not believe a full takeover is likely, time will tell what the end game is, and FM shares should rerate as what had been a perceived disproportionate downside risk due to balance sheet concerns is now a disproportionate upside risk due to M&A potential."
Jefferies said Chinese companies had been very active in the DRC and Zambia, in particular.
In Zambia, First Quantum has 80% of emerging 235,000 tonnes-per-annum copper producer Kansanshi and 100% of Sentinel, ramping up to 250,000tpa.
"These are the largest copper mines in Africa, and an acquisition of a stake in these assets would greatly increase China's presence in the region," the bank said.
It describes copper as a "coiled spring" with a price highly leveraged to a pick-up in global industrial economic activity as new mine supply can't readily respond to stronger demand.
"The mechanism to balance the market will need to be price."