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Sarah-Jane Tasker | March 28, 2009
Article from: The Australian
THE federal Government has thrown the future of OZ Minerals into grave doubt with a shock decision to scuttle China Minmetals’ $2.6 billion takeover bid for the debt-laden miner.

Wayne Swan yesterday stopped the rescue bid in its tracks by declaring it could not proceed if OZ Minerals’ premier asset, the Prominent Hill copper-gold mine in South Australia, was included, because it is located on military ground.

The Treasurer, faced with a growing number of applications from Chinese companies for key Australian resources assets, said the operations were in the Woomera Prohibited Area of South Australia, a weapons testing range.

“It is not unusual for governments to restrict access to sensitive areas on national security grounds,” he said in a statement.

The news stunned the market and was labelled a “purely political play” by industry insiders, who said the defence concerns were never thought to be a deal-breaker.

Ord Minnett analyst Peter Arden said he was “amazed” by Mr Swan’s decision and said it could scuttle the deal.

“OZ could be the sacrificial case and this is a heavy-handed act,” Mr Arden said.

“To knock this back on the military concerns is a lame excuse.”

The move raised fears that the struggling miner might fall into administration unless another deal could be struck, because Prominent Hill, valued between $1.2 billion and $2 billion by some, was seen as the main drawcard for China.

The spotlight is now on the banks, which hold the key to OZ’s survival. The Melbourne-based miner has until Tuesday to negotiate an extension of about $1.1 billion in debt arrangements.

It was originally hoping to extend to September 15, two weeks after the scheme implementation agreement between OZ and Minmetals terminates.

But with the deal now in doubt OZ may be happy with just a one-month extension to explore alternative options. The OZ board had recommended Minmetals’ 82.5c- per-share offer, saying it was the only full bid for the miner and gave it the best chance of surviving.

Chief executive Andrew Michelmore said in a statement last night that OZ was now in discussion with Minmetals regarding possible changes to the proposed transaction structure, and was continuing negotiations with its banks.

A source close to the deal said the Government could be indicating that as long as Prominent Hill was not in the deal, it would approve Minmetals’ bid.

A spokesman for China Minmetals said the company remained in discussions with Australia’s Foreign Investment Review Board and was focused on “delivering an agreed solution to OZ Minerals”.

One option for OZ is to sell Prominent Hill, which is expected to attract enough to pay down its debt, but this would leave the company as a shell, without its flagship project.

Speculation on potential suitors for Prominent Hill has recently focused on Barrick Gold, but as a foreign entity it could face similar hurdles to Minmetals.

BHP Billiton, which has the massive Olympic Dam mine near Prominent Hill, is said to be at the top of the list of potential buyers after it recently went to US and European bond markets to raise $US6.25 billion. Analysts questioned whether Minmetals would still be interested in the company without its main project.

“Minmetals could now pull out, because the Chinese Government may get the feeling the (Rio Tinto and) Chinalco deal is now unlikely and decide not to play ball and pull the Minmetals bid,” one analyst said. “This is not a good outcome for OZ’s employees. OZ has become the pawn in the political game.”

Industry observers widely agreed that Mr Swan’s decision did not augur well for the other Chinese applications before him.

FIRB is also deliberating on Chinalco’s $US19.5 billion deal with Rio, which it has delayed by 90 days, and Fortescue Metals Group’s $645 million Hunan Valin Iron & Steel share issue.

The OZ and Rio deals had both been cleared by the Australian Competition & Consumer Commission.

But the competition watchdog did raise the assumption that it viewed all Chinese state-owned companies as subsidiaries of the same “parent entity” with common commercial interests.

One analyst said Mr Swan’s move was clearly a surprise and no one truly believed the issue of the land being a weapons testing range would kill the deal.

OZ froze its shares at 55c yesterday — the same price they were locked at for three months after its future was first thrown in doubt late last year — pending the Treasurer’s announcement.

http://www.theaustralian.news.com.au/business/story/0,,25252486-36418,00.html

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