Chinese gather up mining resources abroad

By Rick Carew
The Wall Street Journal
Monday, February 16, 2009

http://online.wsj.com/article/SB123477757942292439.html?mod=yahoo

China Minmetals Corp. is leading its home country's latest push to secure natural resources abroad, launching a takeover bid for Australian miner OZ Minerals Ltd.

On Monday, Minmetals offered to buy OZ Minerals for 2.6 billion Australian dollars (US$1.71 billion), or 82.5 Australian cents a share. That's a 50% premium to the stock's last price before trading was halted Nov. 27 amid negotiations with lenders over the company's A$1.1 billion of debt.

OZ Minerals -- one of the world's largest producers of zinc -- has been struggling to refinance US$560 million of loans by a Feb. 27 deadline. With the company facing the prospect of being forced into receivership, its directors are unanimously recommending the Minmetals deal, which would see the Chinese company take on all of OZ Minerals' debt.

Many Australian miners made large investments or acquisitions as demand from China and India pushed up global prices, and heaped on a lot of debt in the process.

OZ Minerals, which has substantial copper assets in addition to zinc, is symbolic of the fallen Australian miners. The company, created from the merger of two smaller miners in June 2008, inherited a debt burden from its predecessor Oxiana, which borrowed to cobble together a network of mines.

Chinese companies have seen a buying opportunity. The OZ Minerals offer follows on the heels of Aluminum Corp. of China's US$19.5 billion deal last week to invest in Rio Tinto, a global supplier of iron ore, copper and coal.

China Development Bank, which provided the bulk of the funding for Chinalco's two-stage combined $33.5 billion investment in Rio Tinto, is also funding the OZ Minerals deal.

Minmetals itself struck a deal last week to buy a 70% stake in Toronto-listed Macarthur Minerals Ltd.'s Australian iron-ore project for 100 million Canadian dollars (US$81 million).

China already has significant domestic supplies of zinc, which is most often used in anticorrosive coatings for steel. China's demand for steel has soared in recent years as the country's urbanization has picked up steam.

Founded in 1950, Minmetals operates a sprawling empire of subsidiaries that import and export commodities but also engage in other businesses; one, for example, owns the Shangri-la Hotel in Beijing. Led by Chairman Zhou Zhongshu, the company is moving to broaden its business globally by investing in mines from Peru to Australia.

In 2007, Minmetals had revenue of US$21.8 billion and earned a profit of 7.1 billion yuan (US$1.04 billion).

In 2005, Minmetals launched a C$6 billion bid for Canada's Noranda Inc. The deal for the copper and zinc producer fell apart later that year after competing bidders entered the picture and opposition to a deal arose from some Canadian politicians.

In December 2007, Minmetals bought Canadian-listed Northern Peru Copper Corp. in a joint bid with Jiangxi Copper Co. for C$455 million.

The OZ Minerals takeover offer will face scrutiny from Australian regulators, in particular the Foreign Investment Review Board overseen by Australian Treasurer Wayne Swan. That board also will examine Rio Tinto's deal with Chinalco. While OZ Minerals' assets are of less national importance to Australia than Rio Tinto's, the government will have to wrestle with the fact that if it rejects the Minmetals deal, the company could fold, resulting in job losses.UBS AG advised Minmetals. Caliburn Partnership and Goldman Sachs JBWere advised OZ Minerals.

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