China wins Australia’s OZ Minerals

SYDNEY/BEIJING – Shareholders of OZ Minerals, a debt-laden Australian miner, approved the US$1,4 billion sale of assets to a state-owned Chinese metals trader yesterday, and talk of more investment by resource-hungry China triggered sharp gains in other Australian mining shares.

The OZ Minerals deal, approved after Minmetals sweetened its offer by 16 per cent, should re-energise China’s ‘go abroad’ policy that was badly bruised last week when Anglo-Australian miner Rio Tinto scrapped a planned US$19,5 billion tie-up with China’s Chinalco.
At a news conference in Beijing, Chinalco President Xiong Weiping said his company was ‘very disappointed’ at the collapse of the Rio deal, but would stick to its strategic goal of becoming a global diversified mining company.
That view was echoed by China’s Commerce Ministry.
Opportunities to invest in high-quality enterprises and assets have increased, investment costs have declined and transaction conditions have improved,’ it said in a statement.
China needs to secure supplies of raw materials abroad to feed its growing economy.
Industry experts and analysts have been concerned that Rio’s decision to dump Chinalco at the altar and opt instead for a big rights issue and an iron ore venture with BHP Billiton would dampen China’s interest in overseas expansion – at a time when many Western mining firms face big debt repayments.
Minmetals will gain access to OZ Minerals assets that include the Sepon copper and gold mine in Laos and the Century and Rosebery zinc mines in Australia. It will set up a new Australian company, Minerals and Mining Group Ltd (MMG), to manage them.
OZ Minerals nearly collapsed after last year’s crash in commodity prices, and was left at the mercy of lenders who set an end-June deadline to pay its US$880 million bank debt.
This is a win-win deal,’ Minmetals Chairman Zhou Zhongshu said in a statement.
Feng Guiquan, a senior vice president at Minmetals, told Reuters in Taipei the company was looking for acquisition targets in Mauritania, and maybe more deals in Australia.
Given where OZ Minerals was six months ago, this is a damn good outcome,’ said Rob Patterson, managing director of Argo Investments Ltd, which owns OZ Minerals
As one Chinese deal was approved, investors moved on to scout for potential new targets, driving up shares in Fortescue Metals Group, the world’s fourth-largest iron miner, by more than a fifth to an eight-month high.
Analysts have said China may slow its pursuit of mega-deals with global resources leaders as it licks its Chinalco wounds, and is more likely to keep a lower profile and stitch strategic deals in Africa, Latin America and Canada.
Shares in other iron ore firms jumped too, with Prospector Iron Ore Holdings up 23 per cent, Brockman Resources up 12 per cent and Gindalbie Metals 11 per cent.
It’s all to do with the BHP/Rio deal,’ said Chris Kimbers, a client adviser with Bell Potter Securities.
Everybody’s waiting now the Chinese have missed out. They still need to have their iron ore supply. It’s likely they will come back and do another deal with Fortescue.’
China’s Hunan Valin Iron and Steel already owns about 18 per cent of Fortescue, and traders said the Chinese group may seek to raise its stake.
Fortescue, founded by entrepreneur Andrew ‘Twiggy’ Forrest, is a distant No. 4 in iron ore mining behind Brazil’s Vale, Rio and BHP, and its first year of output is likely to be only 30 million tons, one-tenth of Vale’s, but its holdings in Australia’s Pilbara iron belt give it the potential to more than quadruple output in coming years.
-Nampa-Reuters

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