Oz Minerals, China's Minmetals in new US$1.2b deal

  • Business
  • Wednesday, 01 Apr 2009

SYDNEY: Struggling Australian miner Oz Minerals announced Wednesday a new, $1.2 billion deal with China's Minmetals that works around government national security concerns about selling foreigners a mine on a sensitive military site.

The new plan should satisfy regulators' foreign ownership concerns and is the second deal in as many days between Australian miners and Chinese companies to move forward.

A third, much bigger, proposal is still being scrutinized by regulators amid political pressure not to allow Australian assets to be sold to Chinese state-owned companies.

Oz Minerals, the world's second largest zinc producer and Australia's third-largest diversified mining company, said the revised deal would allow the company to pay off all its debts and still have 600 million Australian dollars ($410 million) left over.

The company had been facing collapse if it could not refinance AU$1.2 billion ($780 million) in debt this week, and the interest from Chin Minmetals Nonferrous Metals Co. Ltd. was a lifeline.

In a release to the Australian Securities Exchange, Oz Minerals said the plan was to sell eight mines and other exploration and development assets for $1.2 billion to Minmetals.

Oz Minerals would retain the Prominent Hill gold and copper mine, which is located on a military weapons testing site in South Australia sate.

It will also keep operations in Indonesia, Cambodia and Thailand and some listed equity interests.

Treasurer Wayne Swan, the government's top finance official, decided last week that the original proposal for Minmetals to buy all Oz Minerals' assets could not be allowed if it included Prominent Hill because of national security concerns.

The new plan shaves about $1 billion from the original offer, and still requires shareholder approval.

"We believe it represents an attractive offer for Oz Minerals and our shareholders," Oz Minerals Chairman Barry Cusack said in the statement.

"Importantly, it also provides a complete solution to Oz Minerals' refinancing issues."

Late Tuesday, Swan approved plans by another Chinese company to increase its stake in the Fortescue Metals Group to up to 17.55 percent, from its current 9.8 percent.

Under the deal, the state-owned Hunan Valin Iron and Steel Group will spend about AU$645 million ($440 million) that will help fund the next expansion phase of Fortescue's iron ore mining operations in the Pilbara region of Western Australia.

In return, Fortescue will issue new shares to Hunan Valin.

Swan imposed conditions including that Hunan Valin directors must declare any conflict of interest if they are to sit on Fortescue's board.

Fortescue CEO Andrew Forrest said the deal with Hunan Valin could be viewed as a blueprint for how Australian companies could negotiate investment from China without surrendering control or raising foreign regulators' hackles.

"We have been able to raise much needed capital where capital is in really short supply in a way that is totally friendly to Australia and totally friendly to Fortescue and doesn't affect the independence of either," Forrest told Australian Broadcasting Corp. on Wednesday.

He said the deal took more than five years to negotiate and that Hunan Valin would have "absolutely no control" or influence over the company's management or marketing, and only one person on the board.

"This particular investment really does demonstrate how China, in a friendly way, in a minority way, in a totally non-controlled way, in a passive way, can invest in our operations without influencing the independence, direction or sovereignty" of Australia, he said. - AP

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