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China becomes lead financier to new Australian mines
China Affirms Appetite for Metals with $1.55 Billion in Local Mine Deals
By Barry Fitzgerald
The Australian, Sydney
Wednesday, June 5, 2013
http://www.theaustralian.com.au/business/mining-energy/china-affirms-app...
China is backing up its status as the world's biggest consumer of metals by becoming the lead financier to new Australian mines, with more than US$1.5 billion (AU$1.55 billion) now being committed to projects Beijing wants to see developed to ensure a diverse and long-term supply of metals vital to that nation's ongoing industrialisation and urbanisation.
While traditional financiers for Australian projects in Europe and the US have retreated from the sector and equity markets have been closed off as a source of ready funding, China's network of state-controlled development banks, mining companies, and engineering and construction groups is taking up the slack.
ASX-listed Rex Minerals yesterday became the latest beneficiary, with the group signing a financing and engineering/construction memo of understanding under which Chinese interests will facilitate $US550 million in debt funding for the likely $US800 million cost of developing its Hillside copper project on South Australia's Yorke Peninsula.
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This comes as Melbourne-based and Chinese-controlled MMG works towards finalising, by month's end, a proposal from state-controlled China Development Bank Corp to arrange and underwrite $US1 billion in financing for the $US1.5 billion development of MMG's Dugald River zinc mine in Queensland.
Rex shares shot up 13.5 cents, or 54 per cent, to 38.5 cents on news of the China agreement. But the stock remains well short of the 94 cents a share it commanded in November last year before concerns became entrenched about how it would finance the Hillside development in the face of deteriorating equity and commodities.
That it has been able to secure the support of Chinese interests has come as no surprise to Rex chief executive Mark Parry. He said that while there was a lot of money in the major capital markets looking to be invested, it was a trait of Western world markets that "people tend to be very short-term-driven, and that any adverse news forces a sell mentality."
"But the market in China tends to be more long-term thinking. It is looking to secure offtake of critical commodities, so you get a far better hearing there," Mr Parry said.
"Hillside is like an option in the ground, one capable of generating 600 jobs in construction and in operation, plus tens of millions if not hundreds of millions of dollars in taxes and royalties. That option can be realised only if somebody underwrites it or finances it. And at the moment, the people most likely to do that are the Chinese."
Mr Parry said that non-Chinese interest in copper -- particularly in the right sort of political environment, like Hillside -- was still strong, and that Rex would seek to tap that interest to provide the balance of funding for the Hillside development. Mr Parry said the China deal gave Rex greater certainty about the timing and quantum of debt funding.
The (non-binding) memorandum signed by Rex has China Nonferrous Metal Industry's Foreign Engineering and Construction Co (NFC) taking the lead role on facilitating the $US550m in debt financing with Chinese banks. The key driver for it in the deal is the sale of mining equipment to the project. Perth-based mining engineering and construction group Arccon is the subcontractor to NFC.
Baillieu Holst told clients the memo was a start toward solving the funding puzzle for Hillside. The signing of the engineering procurement and construction contract and financing term sheets is expected in September. Rex tips a start to construction in the first half of next year.
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