( Authorized for use only in the course BUSI 640 at University Canada West taught by Brent Ramsay from Jul 06, 2021 to Jan 06, 2022. Use outside these parameters is a copyright violation. )

9B21M059

SHANDONG GOLD’S PROPOSED ACQUISITION OF TMAC IN THE HIGH ARCTIC
Su Liu, Paul W. Beamish, and Alex Beamish wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

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On May 8, 2020, Chinese state-owned enterprise Shandong Gold Group Co. Ltd. (Shandong Gold) held an online signing ceremony simultaneously in Jinan, China, and in Toronto, Canada for the acquisition of TMAC Resources (TMAC), a listed Canadian gold mining company. According to a series of agreements signed by the two parties, Shandong Gold would acquire 100 per cent equity of TMAC in cash at a price of CA$1.751 per share, with a total investment of approximately US$163 million. The acquisition still needed to be approved by the relevant departments of the Chinese and Canadian governments.

TMAC’s core asset was its 100 per cent interest in the Hope Bay gold project located in the northeast of the Canadian territory of Nunavut. The project was located about 160 kilometres north of the Arctic Circle. Since production began in 2017, the project had faced numerous operational problems, which required hundreds of millions of Canadian dollars to resolve, but TMAC had been unable to obtain the required funding.2 Could Shandong Gold realistically take over the operation of this gold mine in the difficult polar environment? Would Shandong Gold be welcomed into the project by Nunavut’s local Indigenous people, who held the land’s mineral lease? What would be the effect of the Canadian government’s recent move to strengthen its review of foreign acquisitions of Canadian companies?

SHANDONG GOLD’S INTERNATIONALIZATION STRATEGY

Proposed in 2013, the One Belt, One Road initiative became one of China’s three national strategies in 2014 and was fully devised in 2015. The next year, in 2016, the One Belt, One Road initiative entered the full implementation stage.3 This ambitious economic development project comprised two parts. The first part (the “Belt”) consisted of overland transport links between China and both Central Asia and Europe. The second part (the “Road”) consisted of a series of maritime routes between Chinese seaports and ports in other countries. By the end of October 2019, the Chinese government had signed 197 One Belt, One Road co-operative documents with 137 countries and 30 international organizations, which included issuing a series of related incentive policies and measures.4 The favourable policies of the One Belt, One Road initiative and the active international mergers and acquisitions market brought huge development opportunities to Chinese precious metal mining and processing enterprises.

( Authorized for use only in the course BUSI 640 at University Canada West taught by Brent Ramsay from Jul 06, 2021 to Jan 06, 2022. Use outside these parameters is a copyright violation. )

Shandong Gold was established in 1996 in Shandong Province. It was a large state-owned enterprise with great financial and technical strengths. Since 2017, it had consistently ranked first among Chinese gold- producing enterprises.5 Shandong Gold actively implemented the national “Going Out” strategy, conducting resource development and production capacity co-operation overseas. In July 2016, Shandong Gold signed a 50–50 joint venture partnership with Barrick Gold Corporation (Barrick), the world’s largest gold miner, at Veladero, Argentina’s largest gold-producing mine. Shandong Gold quickly rose from 16th to 12th in the ranking of global gold min