DEALTALK-Canada's oil patch, mines tempt Asian giants

DEALTALK-Canada's oil patch, mines tempt Asian giants

Thomson Reuters


* More deals seen as Asian economies grow

* Squeezed Canadian balance sheets make for bid targets

* State-owned firms can take long-term view

By Jeffrey Jones and Pav Jordan

CALGARY/TORONTO, Oct 22 (Reuters) - Canada's energy and
mining sectors are riding a wave of acquisitions by Asian
companies that are flush with cash and hungry for resources to
fuel rapidly expanding economies, a trend not expected to let
up soon.

Deals such as Korea National Oil Corp's C$1.8 billion ($1.7
billion) bid for Harvest Energy Trust on Thursday
are aided by difficulties some Canadian companies have in
funding their operations because of the financial crisis.

"We've been saying that the sectors which are the most
susceptible to such M&A are the resource and energy sectors,
and I still believe this to be the case," said Alain Auclair,
head of investment banking for UBS Securities Canada.

"You still see the Asian countries with access to capital
or strong balance sheets that can deploy cash quickly to seize
opportunities.

"I think it's a trend that we're going to keep seeing,
especially for companies who might be under pressure from a
balance sheet perspective."

That is the case with debt-heavy Harvest, known for its
Western Canadian oil and gas operations and a refinery on the
East Coast, one it could not afford to expand by itself.

Last week, China's No. 2 nickel miner, Jilin Jien Nickel
Industry , and Canada's Goldbrook Ventures
offered to buy mining developer Canadian Royalties Inc
for nearly C$200 million to help feed China's appetite for
metals.

The number of such deals will only increase as China, Korea
and other Asian nations seek to own the production of resources
such as nickel or oil, instead of having to buy them on
international markets.

South Korea, for example, aims to pump 300,000 barrels of
oil a day by 2012 as it expands its manufacturing economy. It
is currently the world's fifth-largest oil importer.

In August, state-owned PetroChina paid C$1.9 billion for a
60 percent stake in two planned oil sands projects owned by
Athabasca Oil Corp. That was China's largest Canadian oil
acquisition to date.

The deal helped fuel the shares of small developers such as
Opti Canada Inc and UTS Energy Corp , as
investors wagered they might be the next to be absorbed by the
Asian wave. Both are minority partners in large projects in
Western Canada.

CASH IS KING

At a time when publicly traded businesses are struggling
under the weight of a global economic crisis, state-owned oil
companies can deploy cash for multibillion-dollar projects
without having to seek shareholder approval.

"They couldn't care less about the balance of this year, or
next year, even the year after," FirstEnergy Capital Corp
analyst William Lacey said. "They're looking at the next 10-20
years, and the internal demands and they are going to meet
those demands."

Bob Schulz, a professor of strategy and global management
at the University of Calgary's Haskayne School of Business,
said big, but not blockbuster deals will continue to be the
order of the day in Canada's oil patch.

"Big, positive and probably in C$1 billion to C$2 billion
bite-size chunks," said Schulz.

Those transactions are large enough to give new companies a
a foothold in long-term projects like oil sands developments,
but not of a scale to cause alarm in the United States,
Canada's largest energy and minerals export market, Schulz
said.

Canada has been coveted as a storehouse for natural
resources for hundreds of years, and investors in oil, gas and
minerals enjoy minimal political risk.

In energy circles, it is best known for Alberta's oil
sands, the largest deposits of crude outside the Middle East.

Developing the unconventional oil using mining or
underground steam techniques is costly, and numerous small
players have been culled to make way for major companies with
deep pockets.

Harvest is not an oil sands developer, but KNOC made a
foray into that part of the business in 2006 by acquiring an
oil sands property from Newmont Mining Corp .

Analysts say buyers will get a boost from legal changes in
Canada that force most Canadian income trusts to convert to
traditional corporations by 2011, when their favored tax status
terminates.

The changes will force many, sometimes highly leveraged,
trusts to either become corporations, merge or get squeezed
financially, making many into attractive targets.

($1=$1.05 Canadian)
(Editing by Rob Wilson)