Despite Australia’s recent gloom over its slumping economy, flailing international commodities markets and worries about collapsing demand from China, there are undertones of heady old gold rush days Down Under, as resources companies circle in like the proverbial pack of hungry hyenas.
In the latest developments, China Minmetals on Tuesday unveiled a friendly A$2.6bn ($1.7bn) cash takeover offer for Oz Minerals, becoming the latest Chinese investor to seek to pursue an Australian miner amid an intensifying debate about control of Australia’s resources industry.
The Beijing-based metals producer is offering 82.5c for each Oz Minerals share, a 50 per cent premium to its last traded price, and to refinance a looming debt payment of A$1.2bn. But, reports Bloomberg, Oz Minerals traded Tuesday afternoon at 22 per cent below Minmetals’ offer on concerns the Australian government may block the deal.
The bid – just like the $19.5bn deal struck last week between Chinalco, the Chinese state-owned aluminium group, and Rio Tinto – requires approval from Australia’s foreign investment regulator and Treasurer Wayne Swan, who last week tightened takeover laws after news of the Chinalco deal.
BG Group, meanwhile, which was defeated last year in its bid for Origin Energy, has upped its bid for Pure Energy Resources, the Australian gas company, by 25 per cent, in the latest sign of its determination to build its position in the country’s emergent coal bed methane industry.
BG’s new bid, which values Pure at A$995m (£453m), trumps the latest offer from Australia’s Arrow Energy, the rival bidder that last week raised its offer to A$890m. Not only that, it raises the ante in a growing battle with Arrow’s much larger joint venture partner, Royal Dutch Shell, which is also keen to expand in Australia’s relatively undeveloped coal bed methane business.
It will be interesting to see if anybody makes even a fraction of the fuss about BG’s bid for Pure as has already been made about Chinalco’s deal with Rio – and Minmetals’ bid for Oz Minerals.
In the view of BusinessSpectator’s Alan Kohler, however, the idea of Federal Treasurer Wayne Swan refusing permission for China Minmetals to buy Oz Minerals is “quite laughable”.
China is the buyer of first and last resort for the world’s growing band of bankrupt mining companies, observes Kohler – who gets the credit for our “People’s Republic of Oz” headline. The alternative for Oz Minerals, he notes, is receivership – and quite soon, apparently:
As with Rio Tinto, the only alternative buyer is BHP Billiton, which is close to being the only other entity in the world with a solvent balance sheet. But BHP’s balance sheet is a little less solvent than China’s and its ambitions therefore a little more tempered.
Australia, though, is in no position to refuse China’s cash, notes Kohler:
A steady flow of foreign investment was necessary even in the best of times because of Australia’s persistent current account deficit; in the worst of times it is even more necessary. But the idea of a communist government prowling the world picking up distressed capitalist businesses is pretty amusing in itself, let’s face it.
In any case, China is now on the acquisition trail. For example Minmetals chief Zhou Zhongshu said last week that his company would be pursuing overseas mergers and acquisitions to “shore up growth”. Two weeks ago he bought a copper and gold mine in Peru; this week it’s the Prominent Hill mine in Australia via the takeover of Oz Minerals.
Exactly how this next phase of this strange country’s development plays out is hard to imagine.
Indeed, as Kohler notes, a “message from the president”, Zhou Zhongshu, on the website of China Minmetals states that the company is “…under the care of the Central Committee of the Communist Party of China and the State Council as well as the correct leadership of the State-owned Assets Supervision and Administration Commission of the State Council”.
Does this mean Oz Minerals will also be under the care of the Central Committee of the Communist Party of China, asks Kohler, and if so – what on earth does that mean?
Anyway, he concludes, “come on down Zhou Zhongshu and Xiao Yaqing – we need your yuan, and we don’t care where it comes from”. Saying “yes”, he adds, “will be one of the easiest decisions Wayne Swan will make this year”.
R elated links:
Minmetals makes A$2.6bn offer for Oz Minerals – FT.com
BG increases bid for Pure Energy – FT.com
Oz Minerals trades at discount to Minmetals offer - Bloomberg
People’s Republic of Oz – BusinessSpectator