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Category Archives: OzMinerals

Kevin Naughton
May 1, 2012

EVERYTHING that can be done, has been done, says the head of the state government’s Olympic Dam Taskforce as it waits for BHP Billiton to give the green light to the mine’s proposed expansion.

“Everything is lined up nicely for this decision,” Resources and Energy Department deputy CEO Paul Heithersay said yesterday.

A formal commitment to proceed from the BHP board would trigger billions of dollars in associated infrastructure projects. A board decision is expected mid-year.

Mr Heithersay addressed hundreds of miners, explorers and contractors gathered at the Hilton Hotel for the “2012 Paydirt” SA Resources and Energy Investment Conference.

“Everything the government can do is done; we have completed the EIS and Indenture processes,” he told delegates.

Heithersay said BHP Billiton was already spending “around $20 million a week on pre-commitment projects”, such as expansion of the road from Port Augusta, and engineering design work and earthworks.

Other projects included:

  • 270km of electricity transmission line;
  • 400km of gas pipeline and a gas-fired power station;
  • 105km of railway to be built from Pimba to Olympic Dam;
  • a sea landing facility south of Port Augusta for the unloading of heavy machinery;
  • an airport, complete with solar power and a 737 jet capability;
  • a 10,000 person camp as well as expansion of the Roxby Downs township; and
  • upgrades to Adelaide and Darwin harbours.

Earlier in the conference, Mineral Resources Minister Tom Koutsantonis repeated his “elephant” analogy, used in a recent presentation overseas.

“South Australia is poised to take its place among the titans of mining – not just in Australia but in the world,” Koutsantonis told delegates.

“In Olympic Dam we have tracked down an elephant, we are still in the hunt for the rest of the herd.

“These are exciting times, but they are also challenging times for our State.

“We need to manage our transition into a global mining giant in a way that benefits all South Australians.”

The minister also announced the successful applicants for exploration subsidies under the Plan for Accelerating Exploration, a subsidy program that dates back to the SA Exploration initiative (SAEI) in the early 1990s.

“Twenty-six mineral and petroleum exploration companies spread across South Australia will share about $1.7 million funding from the State Government,” he said.

Under its newer name PACE, it is to be expanded into a series of other collaborations including energy and water, subject to government funding approval.

The importance of Olympic Dam to the economy had earlier been underlined by Oz Mineral’s managing director Terry Burgess when he told delegates a recent set of job ads for work at nearby Prominent Hill had attracted 3000 applicants.

Chinese lift offer and land OZ deal

Barry Fitzgerald
June 12, 2009

A SWEETENED offer of $US1.38 billion ($A1.69 billion) for the bulk of OZ Mineral’s assets has won the day for China’s state-owned Minmetals.

Battle-weary OZ shareholders roundly endorsed the deal at a meeting in Melbourne (92 per cent approval) but not before hurling abuse at the OZ board for what they saw as its role in making the former high-flying miner a major casualty of the global financial crisis.

A big protest vote on the re-election of long-standing director Michael Eager was also recorded (42 per cent against) and the adoption of OZ’s remuneration report was defeated (62 per cent against).

All of that reflected what OZ chairman Barry Cusack said had been an “extremely stressful time” for OZ since the financial crisis hit in mid-September, prompting OZ’s banking syndicate to call in $1.1 billion in debt.

Minmetals project director Mark Liu said after the meeting that the group’s decision to increase the offer demonstrated “goodwill, not only to OZ shareholders but to the Australian public as well”. It comes as the uproar in China continues over Rio Tinto’s spurning of a refinancing deal with state-owned Chinalco.

Minmetals’ original deal was struck in February. Like the Rio Tinto deal before it, it was essentially a refinancing package for the debt-heavy OZ. But it had become unpalatable because of the strong improvement in commodity prices and equity values since.

Last Friday, OZ received two refinancing alternatives, one from RFC and Royal Bank of Canada and one from Macquarie. Both were rejected ahead of yesterday’s shareholder meeting because they lacked, among other things, the certainty OZ was looking for as its June 30 debt repayment deadline loomed.

It was revealed yesterday that Minmetals had been in talks with OZ for about three weeks on increasing its offer to take account of the improved market conditions. The improved deal was agreed to at 8pm on Wednesday night and announced by Minmetals at 10pm, leaving OZ to tell shareholders of the improved offer at the meeting.

OZ said that unlike the competing proposals (Macquarie pulled its bid at 6pm on Wednesday), the new deal with Minmetals was a complete solution to its debt woes.

The only condition was that shareholders approve the deal at yesterday’s meeting.

OZ emerges from the deal sporting close to $800 million in cash and with its portfolio of interests reduced to some exploration assets and the Prominent Hill copper/gold mine in South Australia.

Mr Cusack said OZ would be cautious in how it spent its cash. “Having just come out of a life-threatening experience, we want to make sure that we don’t fall back into one,” he told shareholders.

June 11, 2009 – 11:57AM
The Chinese cannot be accused of being slow to learn their lessons.

Minmetals would have watched very closely the unfolding disaster that fellow Chinese-owned Chinalco suffered last week at the hands of the board of Rio Tinto.

Chinalco had a once in a lifetime opportunity to get its hands on some unparalleled resource assets in Australia.

It was in the box seat to double its stake in Rio Tinto and take direct stakes in highly sought after assets but it blew it. It got greedy.

Had it delivered a drop dead price on day one the outcome could have been very different.

Minmetals last night and at the 11th hour increased its offer for the OZ Minerals assets it is able to buy, by 15 per cent to $US1.386 billion ($1.75 billion).

The sale of these assets has been one of the most contested deals in recent corporate history.

Macquarie Bank was the primary rival to Minmetals – the Australian bank’s plan involved a recapitalisation for which it would receive some hefty underwriting fees.

But in the end Macquarie’s deal was too risky – given that it would need to provide bridging finance until an issue had been undertaken.

Only a very brave – or foolhardy – organisation would extend finance to an overgeared company like Oz Minerals whose existing bankers are already holding a gun to its head.

Going into this morning’s OZ Mineral shareholder meeting to approve the Minmetals the board made it clear that the banks had cocked the trigger and were ready to squeeze in the event that investors voted against the sale of assets to Minmetals.

It could be argued that on this basis – and given the proxies received indicated that it would be approved – that Minmetals didn’t need to raise the offer.

But there is nothing like certainty – even if it comes at a price.

Lobbing a better offer – and one that sits inside the independent experts range of values – is probably cheap insurance.

Barry FitzGerald
June 11, 2009
OZ MINERALS will proceed with a shareholder vote today on its controversial $1.5 billion refinancing deal with China’s Minmetals after a last-minute $1.4 billion alternative proposed by Macquarie Group last night fell over in embarrassing fashion.

Macquarie told OZ it could not deliver the “degree of certainty” its board would have required to support the proposal. It is believed that Macquarie was unable to secure sub-underwriting support from a market yet to be fully convinced that recent commodity price strength will stick.

OZ said that without the necessary guarantees in the Macquarie proposal, it would have been faced with the same dire consequences it would have faced if the Minmetals deal had collapsed – the prospect of its banking syndicate forcing a move into administration.

But OZ’s chairman, Barry Cusack, faces a tough assignment in herding shareholders towards the Minmetals vote. This is likely to prompt a heated debate at today’s meeting in Melbourne on OZ’s dismissal of Macquarie’s initial alternative proposal, and a $1.5 billion recapitalisation proposal put forward by the RFC Group and the Royal Bank of Canada.

OZ said earlier this week it was convinced the Minmetals deal remained the best solution to its debt woes following a “scrupulous” assessment of competing recapitalisation plans. The deal involves OZ selling all its assets to Minmetals with the exception of its new Prominent Hill copper and gold mine in South Australia.

OZ said that while the board considered Macquarie’s original equity recapitalisation proposal to be better than the RFC-RBC proposal, neither was superior to the Minmetals deal.

Like Rio Tinto’s now aborted $US19.5 billion refinancing deal with China’s Chinalco, the OZ deal with Minmetals was struck in February when the cloud over commodity prices from the global economic crisis was at its darkest.

Commodity prices have since rebounded, convincing Rio to refinance itself through a heavily discounted rights issue and an iron ore joint venture in the Pilbara with BHP Billiton.

But OZ’s refinancing needs have been more pressing than Rio’s, with the company raising the prospect of having to go into administration if it could not deal with the $1.1 billion debt repayment demands of its banking syndicate.

An early deadline was recently extended to June 30 to allow time for the Minmetals deal to happen.

An independent expert has previously valued the assets to be sold to Minmetals at up to $2 billion, $500 million more than on offer from Minmetals. But the expert said that the deal was in the best interests of shareholders. OZ shares closed down 2c at 89c yesterday.

Jesse Riseborough
May 25, 2009
OZ Minerals, the debt-laden zinc mining company selling $1.2 billion of assets, is boosting exploration work to accelerate expansion plans at its only remaining mine.

“We will recommence our exploration that we have had to defer and we will complete our studies into future underground and expanded pit production,” Chairman Barry Cusack said yesterday at the official opening of OZ Minerals’ $1.2 billion Prominent Hill mine in South Australia.

China Minmetals Group, the nation’s biggest metals trader, is seeking to complete the purchase of OZ Minerals assets next month, giving it control of the world’s second-biggest zinc mine and supplies of copper, gold and nickel.

Prominent Hill, the company’s only source of revenue should the Minmetals sale be approved, will be profitable “within days” once it receives payment for the first shipment of copper concentrate to India, chief executive Andrew Michelmore said.

The company is drilling mineral targets as it seeks to discover sufficient resources to allow for an underground expansion of the mine, Mr Michelmore said.

“We have to do a lot more drilling to be able to come to that assessment, so that will take some time and is why the cash we will have on hand will be very important,” he said, referring to the company’s cash balance of about $700 million after the Minmetals sale.

Melbourne-based OZ Minerals fell 4.3 per cent to close at 78.5¢ on May 22. The stock has risen 43 per cent this year and has a market value of $2.5 billion.

Output from Prominent Hill started in February and the company has forecast production of as much as 100,000 metric tonnes of copper and 70,000 ounces of gold this year. The open-pit mine is estimated to operate for 10 years, OZ Minerals has said.

“I’m looking forward to phase two of Prominent Hill and phase three, which will I’m sure include a major underground mine as well as more open-cut,” South Australian Premier Mike Rann said. “What we are seeing here is the start of a series of developments.”

Mr Michelmore, 56, and other senior executives will join Minmetals once the sale is completed.

Mr Michelmore, who will be CEO of the Chinese company’s Australian unit, declined to comment on the role or Minmetals’ future strategy in Australia.

Mr Michelmore last month agreed to sell almost all OZ Minerals’ assets to Minmetals to repay $1.1 billion debt after a rout in commodity prices.

OZ Minerals is seeking to complete the sale by June 18, leaving Prominent Hill as its main asset.

State-owned Minmetals was blocked from buying Prominent Hill by Treasurer Wayne Swan in March on security grounds because of its proximity to the Woomera Protected Area (WPA) — a 20 per cent chunk of SA controlled by the Defence Department.

Woomera is the largest landlocked missile-testing range in the world.

BHP Billiton, the world’s largest mining company, may be prepared to pay $2.75 billion to buy Prominent Hill to secure copper and uranium for its nearby Olympic Dam operation, JPMorgan Chase & Co said last month. The Olympic Dam plant, about 130 kilometres from Prominent Hill, has excess annual capacity equivalent to about 50 per cent of Prominent Hill’s copper concentrate output, JPMorgan said.

BHP has previously bought concentrate from the mine to treat at Olympic Dam.


Barry Fitzgerald
May 6, 2009

FORMER high-flyer OZ Minerals is to undergo wholesale board and management change to better reflect its greatly reduced size following the forced asset sales required to rid itself of its debt refinancing woes.

Five of the eight-member board, including chairman Barry Cusack and managing director Andrew Michelmore, plan to ride off elsewhere, but won’t be able to forget their time at OZ in a hurry.

Shareholders’ litigant IMF Australia plans to make sure of that, saying yesterday a $1 billion class action claim being handled by legal firm Maurice Blackburn on behalf of “hundreds” of OZ shareholders remains in the pipeline.

The potential class action was first flagged in December, but nothing has been heard since, and as of yesterday OZ had not received any statement of claim or other documents from IMF or Maurice Blackburn.

IMF would not reveal the proposed timing of the class action but it is believed to want to see OZ complete its $US1.2 billion ($A1.6 billion) in asset sales to China’s Minmetals. The deal is subject to a shareholder vote on June 11. Without the deal, OZ faced the prospect of administration.

OZ was created by the friendly merger of Oxiana and Zinifex last year, implemented by an Oxiana scrip offer for Zinifex.

IMF’s proposed class action involves alleged misleading and deceptive conduct and alleged breaches by OZ of its continuous disclosure obligations between February 28 and December 3 last year. OZ has continued to strongly refute the allegations and plans to vigorously defend itself against any legal action proposed by IMF.

Announcing its board changes yesterday, OZ said director Tony Larkin had submitted his resignation on Monday. Another director, Ronnie Beevor, will not seek re-election at the June 11 meeting.

Assuming the Minmetals deal proceeds, Mr Michelmore will resign and take up a senior executive role with the Chinese group. A search for a replacement managing director is now under way.

Mr Cusack and another director, Peter Mansell, plan to resign from the board once the new managing director is appointed. The slimmed-down OZ would then seek to appoint two replacements, who will face shareholders at OZ’s 2010 annual meeting for election.

The result is that OZ will end up with a board of six, down from the current eight. OZ shares closed 2.5¢ higher at 82¢.

The reporter owns OZ shares and is not party to any class action.

BHP Billinerals Adam Morton
April 22, 2009

AUSTRALIA’S big miners are pushing for a merger of 11 industry bodies in a bid to cut costs and centralise lobbying power under the Minerals Council of Australia.

Organisations targeted under the plan include the Australian Coal Association, the Australian Aluminium Council, the Australian Uranium Association and state and territory minerals councils.

A letter signed by chief executives at 11 companies, including BHP Billiton, Rio Tinto and Xstrata, says it would “improve national consistency” and reduce a combined operating cost topping $45 million a year.

“Quite simply, we will not continue funding organisations as separate entities to the Minerals Council of Australia as we have previously,” it says.

Sent on the eve of Easter, the letter has angered some industry bodies and their junior member companies.

Most declined to speak, but industry insiders said they feared concentrating power in Canberra would strip some commodities of representation and deny others a strong voice at state level, where much of their business lies.

Tony Fawdon, executive chairman of minerals explorer Diatreme, said the Queensland Resources Council had been crucial in the industry winning $50 million from its State Government in 2006.

He said the national minerals council sat in an ivory tower with little idea of what happened at state level.

“Frankly, I don’t think the (minerals council) is going to have any practicality at all — the bigger the company, the bigger the chamber, the less hands-on the practitioners are at the top of it,” he said. “How are you going to cut up a very, very thin cake of funding across the states?”

Minerals Council chief executive Mitch Hooke said the plan was a commonsense approach that would “enhance regional capacity, not diminish it”.

He said the states would continue to be represented by branches within the national council, as Victoria had been since a merger in 2004. The Northern Territory Resources Council had already volunteered to take part.

“The goal is alignment of advocacy, the goal is improved efficiency and effectiveness,” Mr Hooke said. “If Victoria is anything to go by, the regions are richer for working within the national secretariat while maintaining autonomy to deal with the state issues.”

Mr Fawdon said this meant little: the Victorian minerals council was “pretty toothless”, unlike its counterparts in Queensland, South Australia and Western Australia.

Mr Hooke will convene an implementation committee to be chaired by former Newmont executive Paul Dowd.

Other companies backing the plan are Anglo Coal, Downer EDI, Barrick Gold, Minara Resources, Newcrest Mining, Ausminerals, Thiess and Newmont Asia Pacific.

Several industry bodies declined to comment.

James Kirby
April 19, 2009

IT’S remarkable, but we just might see Rio Tinto, the nation’s second-biggest miner, saved from doing a dud deal with China by … well, China.

Puzzled by strong rises in commodity prices since the start of the year — for example, copper is up 50 per cent — the mining industry has twigged that China is hoovering up available stocks of key metals at what remain relatively low prices.

Put simply, China appears to be stockpiling the resources it needs for the longer term. From China’s point of view it’s a smart strategy and a better use of money than spending it on US investments. From the point of view of Australian stockmarket investors, it’s the best news this year because it drives up the stock prices of mining companies.

And, of course, among those improved stock prices is Rio Tinto. It was only a few months ago that Rio agreed to effectively hand control to China by selling up to 18 per cent of the company, along with interests in many of its best mines, to state-owned Chinalco. From less than $30 at the time of the Chinalco announcement, Rio is now trading at $59.12.

In other words, Rio is no longer the basket case it was when the dual-listed UK-Australian company did a deal that sold Australian interests down the river. The chance to scrap that deal is now very real.

In fact, if big institutional investors are as combative in public as they have been behind closed doors, we could see fireworks at Rio’s Australian annual meeting in Sydney tomorrow.

For a short time it seemed anyone who said a bad word about this deal was shouted down — worse still, some were called racist or xenophobic. That’s invariably unfair and inaccurate. It’s reasonable to question any deal as feeble as the Chinalco deal Rio announced and then pretended had attained investor support.

It’s also reasonable to ask hard questions about the terms on which Australia should engage with China. It might be inappropriate to say China does not “play by the rules”, but it is fair to say China plays by its own rules and is increasingly in a position to impose those rules on others.

The Chinalco deal is exceptional, but only in terms of size and its inadequacy.

But whether the deal gets through — and it’s looking less likely by the day — the broader debate the deal opened for investors needs to take place.

Can Australian companies — Rio, Fortescue, Oz Minerals and many more to come — assume any deal from a China-based organisation is acceptable as long as money is on the table? What criteria were used to raise that money? What level of expertise does the management that is leading the China side of the deal have?

There is nothing to say these factors will not change over time, nothing to say things won’t get better in China as its “market economy” evolves, and nothing to stop anyone asking questions such as these at the meeting tomorrow.

Michael Pascoe
April 17, 2009 – 10:18AM

The commodities boom isn’t dead – it’s just resting. The commodities bubble is dead – and that’s a good thing. And just to make it a little confusing, China is playing a couple of curious hands in its long-term game of achieving resources security.

And that leaves the chances of the Australian economy suffering only a mild recession hanging tantalisingly over Wayne Swan’s head as he drafts next month’s budget.

There’s no shortage of headlines proclaiming not just that the commodities boom is over, but that we now have a dismal commodities crash. Plunging manganese prices are the latest exhibit, hard on the heels of lower coking coal prices and the on-going speculation about whether the key BHP and Rio iron ore contracts will settle 30 or 40% down on the 2008 year.

(Copper is proving a little problematical with its bounce of 40 to 49% from its lows, depending on what day you choose, but the pessimists are quick to say the price is still well below last year’s highs.)

But there’s a simple process that pricks the doomsayers bubble. First ask if Australia was enjoying a commodities boom in 2007 – the answer is “yes”. Then ask how the boom can be dead, extinct, kaput, an ex-boom, if prices in 2009 are above those of 2007.

That remains the furiously overlooked reality. The real story isn’t the collapse of prices in 2009, it’s that prices rode a ridiculous bubble in 2008 and have now returned to something more like healthy and normal.

The bubble was a lot of fun for those wanting to float an exploration company, the hedge funds that helped push up commodity prices and those who liked to play I-can-forecast-a-higher-oil-price-than-you-can, but it was a nonsense, by definition a bubble.

There were a clutch of projects and hopes built on the bubble being sustainable and they have been inevitably dashed. That happens with every bubble. But now some of the resources pessimism is in danger of being as equally nonsensical as last year’s optimism.

Certainly China is not behaving as if it believes the resources boom was all over red rover. If it did, it wouldn’t be suffering the hassles of whining Rio shareholders and nervous foreign investment review bodies, never mind the odour of propping up corrupt and criminal third world despots. And heavens knows there are easier ways to spy on Woomera.

China, like BHP, still has its eye on the long game – regaining what it sees as its rightful place at the centre of the universe. That requires on-going massive urbanisation – and raw materials.

Other emerging nations have their own ambitions that also require plenty of natural resources, but they lack China’s present ability and need to put their foot on them.

While today’s headlines might be about a dip in China’s latest quarterly GDP growth, Beijing remains on track to achieve greater growth in the long, medium and not-very-distant-at-all terms.

Along the way there is some confusion and plenty of room for speculation about what’s happening with raw material stockpiles as Chinese buying has been at odds with the GDP figures.

Copper the stand-out

Copper is the present stand-out metal, the extent of its bounce sending analysts in search of greater meaning. A UK Telegraph story canvases the possibility that the Middle Kingdom might be just buying commodities as an alternative to the fragile US dollar.

The paper quotes growing analyst opinion that there’s more to the Reds’ love of red metal than the present demand for copper wire.

The head of a Taiwanese commodities firm, Nobu Su, is quoted as saying the splurge is about Beijing trying to extricate itself from dollar dependency as fast as it can: “China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact and can cover their infrastructure for 50 years.

“The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources.”

I’d argue there’s nothing subtle about it at all.

The Telegraph also quotes Macquarie Bank and UBS commodity chiefs as supporting the currency and US Treasury diversification story and references the interest of the head of China’s central bank in establishing a world currency based on a basket of 30 commodities.

That’s getting rather exotic for a world order not capable of really doing much at the London G20 despite the seriousness of the immediate crisis, but it’s another interesting card to place upon the table.

The immediate interest for Australia are the green bamboo shoots beyond China’s latest GDP figures. The Reserve Bank governor alluded to them after his last board meeting. Reports of record vehicle sales in China last month along with the commodities demand and bank lending are enough to keep Wayne hoping that the commodities boom that underwrote the past few budgets will indeed be there next year.

And no wonder Kevin wants a fibre optic rollout – we may not be able to afford copper.

Michael Pascoe is a BusinessDay contributing editor.–boom-not-dead-20090417-a9ab.html?page=-1

Mathew Murphy
April 14, 2009 – 11:06AM

Melbourne-based zinc and gold miner OZ Minerals has signed a binding agreement to sell many of its assets to China’s state-owned Minmetals for $US1.206 billion ($1.65 billion).

The deal, which excludes the Prominent Hill and Indonesia-based Martabe sites, was outlined after the Federal Government knocked back the initial $2.6 billion deal, citing national security issues.

Federal Treasurer Wayne Swan last month rejected the bid from China Minmetals Non-ferrous Metals Co. for all of Oz Minerals because the Prominent Hill mine was deemed too close to the Woomera Prohibited Zone in South Australia.

OZ Minerals chief executive Andrew Michelmore described the new deal as a win for shareholders.

”We are pleased that we have now agreed binding terms with Minmetals,” he said. ”Once implemented, this transaction will provide a complete solution to our financing issues and see shareholders retain their OZ Minerals shares and therefore exposure to the Prominent Hill operation and its long-term growth profile.”

The Age