labels: M&A
Australia rejects China's bid for OZ Minerals news
27 March 2009

The Australian government has rejected Minmetals' $1.8-billion acquisition of the world's second-biggest zinc miner, the debt-ridden OZ Minerals on grounds of national security. The rejection may weigh on Chinalco's proposed deal with Rio Tinto.

Wayne Swan, treasurer, Australian Australian treasurer Wayne Swan, who has the last word on all acquisitions in the country, rejected the deal since OZ Minerals' Prominent Hill mining operations were in close proximity to the Woomera weapons testing site.

Swan said in a statement, "OZ Minerals' Prominent Hill mining operations are situated in the Woomera Prohibited Area in South Australia and the weapons testing range makes a unique and sensitive contribution to Australia's national defence."

But he added that the acquisition could still be approved if the Prominent Hill mine is excluded from the deal as the government was open to alternative proposals.

This rejection comes just four days after the Australian regulators decided they needed another three months to assess the $1.8-billion acquisition of Minmetals, throwing Oz Minerals to the mercy of lenders who are owed $1.3 billion by 31 March. (See: Lenders may give OZ time amid Minmetals bid)

The Prominent Hill, a copper and gold mine, is a jewel in OZ Minerals asset portfolio and the company had earlier warned that it would be put under an administrator if the acquisition bid of Minimetals fails.

Oz Minerals would be more than willing to sell off all their assets to Minmetals and keep the Prominent Hill mine, but it is not sure whether its bankers to whom it owes $1.3 billion will allow it.

Although Oz Minerals had tried raising funds through asset sales, but did not find any buyers due to the global economic crisis and other miners like BHP and Barrick Gold feel that it would be cheaper to buy OZ Minerals assets through the administrator than buying it outright from OZ Minerals.

This month, the Australian Foreign Investment Review Board (FIRB) had decided to probe three other Chinese firms investments in the country's mining industry just a week after a similar extension was granted to review Aluminum Corp of China's (Chinalco's) $19.5-billion investment in mining giant Rio Tinto (See: Chinalco invests $19.5 billion in Rio Tinto to raise stake to 18 per cent) and Hunan Valin Iron & Steel's proposed acquisition of 16.5 per cent stake worth $645 million in iron ore producer Fortescue Metals Group.(See: China's Valin raises stake in Australian Fortescue Metals)

The Australian regulator has also asked another Chinese company, Anshan Iron & Steel Group to resubmit its application to invest $112 million in Gindalbie Metals, a Western Australian iron ore producer.

Earlier this week, Chinalco passed its first hurdle in its investment in Rio Tinto when the Australian Competition and Consumer Commission cleared Chinalco's investment in Rio Tinto.

The ACCC ruled that the deal would not "unilaterally decrease global iron ore prices below competitive levels," but cautioned that the deal may be against national interest and left it to the FIRB to make a final call on the deal.

The landlocked Woomera test facility, the largest land-based range in the world, was once a secret township closed to the outside world and is now synonymous with the testing of long range missiles and rockets during the Cold War and the launch and tracking of spacecraft in the early days of the space age.

Today, it is a strategic defence asset used mainly for aerospace test and evaluation activities.

Although Chinese investment in Australian strategic mineral wealth is founded on commercial interest, but since the companies are state run enterprises, Australia fears that Beijing may exploit these so called commercial investments, in a way that could prove detrimental to Australia in the future.

The government had put on hold decisions on any of these acquisitions till it formulated a comprehensive policy on whether Australia is open to complete takeovers of assets by Chinese state-owned entities.

Some commentators say if it was alright for Oz Minerals to operate its mine in the prohibited area, it ought to be good enough for the Chinese, who in all probability may venture into the area on rare occasions.

Other Australian companies also own and operate in the Prominent Hill in Woomera Prohibited area such as the technically foreign miner, BHP Billiton and the UK-based Rio Tinto.

Observers feel that Swan may have concluded that too much of Chinese investments in Australia's strategic mineral sector would not benefit thecountry in the long run and was a way of telling the Chinese: 'hands off our minerals.'


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Australia rejects China's bid for OZ Minerals