China, bruised by the collapse of a proposal to buy a Rio Tinto stake, could confine itself to project-level deals with miners to feed its hunger for metals and shun company acquisitions to avoid further loss of face.
State-owned metals group Chinalco was pinning its hopes on a $19.5 billion tie-up with Rio Tinto, which would have guaranteed it metal supply, but that deal failed as shareholders disapproved and rising metal prices allowed Rio to raise money by a rights issue.
China has a pressing need for raw materials, particularly iron ore and copper, to fuel the leap in construction from the government's infrastructure-heavy $586 billion stimulus package.
But its experience with Rio could lead to a different approach: buy stakes in mines rather doing company-level deals.
I think it's very unlikely that Chinese companies are going to go for hostile takeovers or anything like that. Also, I don't think they want to run these companies now. What they want is the product, that's the key thing, said Tim Williams, director of global mining & metals at Ernst & Young.
They'd want to keep the existing management in place; don't rock the boat, but do a deal, structure some sort of arrangement. They haven't got the experience of running modern mines, so they need the existing management, and they don't want to upset anybody, he said.
Since the start of 2009, copper has soared by over 94 percent, nickel is up more than 60 percent, and aluminum up more than 27 percent, on hopes of a Chinese recovery.
FODDER FOR M&A TALK
This has also given rise to rumors that China is on the prowl for acquisitions. Market talk has swirled in recent weeks that Anglo American was in Beijing's sights as a bid target, prized for both its iron ore and copper projects.
Africa-focused smaller copper miners First Quantum Minerals
and Equinox Minerals were also touted as good fits for China.
But coming in at the project level, with both larger and smaller miners, could work better. The Chinese could put up the development money in exchange for a shareholding in the mine and an offtake agreement for the product.
A good example of a project level deal, said Williams, was the arrangement last year between blue-chip Chilean copper miner Antofagasta and Japanese trading firm Marubeni Corp, where the miner sold a 30 percent stake in the Esperanza project to Marubeni for $1.3 billion to help finance the mine's construction.
Do I think they would try and actually buy outright a major mining company? No, because it could create political difficulties, said Charles Gibson, head of mining research at Edison Investment Research.
Would they buy a junior mining company? No, I don't think so, because that gives them an operational headache when they have to manage their assets in the middle of Africa somewhere, and I don't think they want to do that, he said.
Williams said China might be looking at Xstrata's Tampakan copper-gold project in the Philippines, and Anglo American's copper-gold Pebble mine in Alaska and iron ore in Brazil, with a view to structuring similar deals.
While the mining sector is in far better shape now than it was at the end of last year on the back of the jump in metals prices, companies still need to fund their new, big projects, and bank credit is hard to find.
Peter Davey, head of mining research at Ambrian, said that it wouldn't make sense for the Chinese to buy Anglo American when iron ore is only a small portion of the company.
But he added that an agreement at the mine level between the Chinese and Anglo American's Brazilian iron ore project was plausible.
One model the Chinese could follow is the $350 million debt facility that nickel laterite producer European Nickel agreed with two Chinese partners to fund its Caldag mine in Turkey.
Analysts said that despite the Rio setback, if demand continued to grow, China would explore all options.
Chinese firms' overseas buyouts will be in various forms, depending on how much they can benefit from it, said Ju Guoxian, senior analyst at First Capital Securities in China.
Ernst & Young's Williams said: What really concerns them is being held hostage in boom times, and just not being able to get hold of (these materials) without paying unbelievable prices...it's really security and access.
(Additional reporting by Polly Yam in Hong Kong; Editing by Sitaraman Shankar)