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China or bust for OZ Minerals as Minmetals bid $2.6 billion for miner

CHINA’S march into the Australian resources sector gathered pace yesterday, with Beijing-based Minmetals launching a $2.6 billion friendly bid for debt-stricken OZ Minerals.

Just days after Rio Tinto unveiled a controversial $30 billion bailout from China’s Chinalco, the OZ board last night presented shareholders with a stark choice: accept Minmetals’ offer or risk losing everything.

The deal appears to be the final chapter in one of the most disastrous mergers in Australian corporate history — the $12 billion marriage of mid-tier miners Oxiana and Zinifex less than a year ago.

It also caps a nightmare week for corporate Melbourne, where both Rio’s Australian operations and OZ are headquartered.

And it promises to be a major policy headache for the Federal Government, as the Foreign Investment Review Board struggles to balance Australia’s national interest with the need to maintain good diplomatic relations with China.

Under the terms of the agreement, Minmetals has offered OZ shareholders 82.5 a share.

That is a 50 per cent premium on OZ’s last traded share price of 55 on November 27, when the stock was suspended while the miner sought a solution to its financial woes.

But it is a fraction of Oxiana’s record $4.28 in November 2007.

The deal is conditional on OZ extending the repayment deadline on its loan facilities from February 27 to the end of March.

If the takeover proceeds, Minmetals will repay all of OZ’s $1.1 billion in debts.

Asked if the alternative to the takeover was receivership, OZ chief executive Andrew Michelmore responded: “To be absolutely honest, there were a number of times when discussions with the banks got us very close to having to assess that.”

If OZ falls into the hands of receivers, there is a chance its shareholders will end up empty-handed as creditors rank first in line to receive the proceeds from any asset sales.

The Minmetals transaction does not affect OZ’s planned sale of its Golden Grove zinc and copper mine in Western Australia and the Martabe gold project in Indonesia.

Oxiana’s founder and former chief executive Owen Hegarty is reported to be interested in buying back Martabe.

Minmetals plans to keep OZ’s head office in Melbourne.

OZ shares will resume trading this morning.

In other developments, rumours continue to swirl through business circles that BHP Billiton is planning a fresh assault on Rio in an attempt to head off Chinalco.

BHP, which abandoned its initial $US66 billion hostile bid for Rio in November, must wait one year before launching a second attempt for its former target under British takeovers legislation.

The law, however, waives the 12-month ban on renewed bids in three circumstances: where the target’s board recommends the offer from its suitor; where a third party makes a bid for the target; and where there is a change in the controlling ownership of the target.

Under the first exception, BHP could potentially revive the offer if London’s all-powerful institutional investors exerted pressure on Rio’s board to support the bid.

Rio’s proposed rescue package hands Chinalco up to 18 per cent of the miner, as well as a swathe of its copper, aluminium and iron ore assets.

The agreement has angered many Rio shareholders because it bypasses their first right of refusal over the issuing of new shares, as the company sells off stakes in some of its prize assets in the midst of a commodities downturn.

http://www.news.com.au/business/story/0,27753,25066085-462,00.html?referrer=email

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2 Comments

    • gerrytreuren
    • Posted February 16, 2009 at 11:05 pm
    • Permalink

    So, here we go. The global financial system seizes up and starts to impose credit rules far tougher than ever before, and the net result – Chinese sovereign funds – with hundreds of billions of dollars in reserve – buys up choice assets at ridiculously low prices…

    • gerrytreuren
    • Posted February 23, 2009 at 10:51 pm
    • Permalink

    One would have thought that it was predatory behaviour by the Chinese investors. Not true. Apparently, these deals are only happening because of the miners approaching the various Chinese companies…largely because Anglo-American-European-Australian banks are busy conserving their capital, leaving the big Chinese sovereign funds as the main source of debt finance…


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