China: wheeling and dealing in Australia

Australia opposition party wants Rio Tinto/Chinalco deal halted

James Grubel, Reuters

1st May 2009

Australia should veto China's planned $19.5 billion investment in miner Rio Tinto Ltd Australia's main opposition Liberal Party said on Friday as political opposition to the deal continued to grow.

Opposition Leader Malcolm Turnbull said the investor, China's state-owned Chinalco, was effectively an arm of the Chinese government and would have a conflict of interest as both a customer and influential part-owner of Australian resources.

"The Chinalco-Rio transaction should not be approved by the Treasurer in the form in which it has been presented," Turnbull said in a speech in Sydney.

The deal between Chinalco, an aluminium maker, and Rio Tinto is being considered by Australia's foreign-investment advisory body, which makes a recommendation to Treasurer Wayne Swan who in turn makes the final decision on national interest grounds.

Swan recently approved two other investments by state-owned Chinese firms, allowing a $438 investment in iron ore miner Fortescue Metals Group and approving a revised $1.2 billion sale of OZ Minerals assets to China's Minmetals.

An opinion poll in April found 57 percent believed Australia should resist Chinese investment in mining companies, while only 25 percent believed Chinese investment should be welcomed because it helped the domestic economy and provided jobs.

Turnbull's comments add to the public and political opposition in Australia to Chinese investment, with the Greens, independent and conservative National Party lawmakers also opposed to the deal.

In a speech to foreign policy think-tank the Lowy Institute on Friday, Turnbull said he was concerned China would not allow any foreign company to acquire a similar stake in Chinese firms.

He said the investment was clearly strategic because it would enable Chinalco to block other parties from taking over Rio, and would give Chinalco direct influence over some of Rio's key assets, including Australian iron ore and aluminium assets.

"The object of the Chinalco acquisition is plainly strategic," Turnbull said. "This will give Chinalco, and hence the Chinese government, the seat of greatest influence and access to information about production, costs, pricing and marketing strategies of our second-largest resource company."

He also used his speech to step up criticism of Australia's Mandarin-speaking prime minister, Kevin Rudd, accusing him of being too fixated on China at the exclusion of other nations.

(Reporting by James Grubel; Editing by Mark Bendeich)

(c) Copyright Thomson Reuters 2009.

CNMC to buy controlling stake in Australian rare earth miner

By Jessica Jiao, Interfax China Metals and Mining

8 May 2009

Australian Securities Exchange-listed rare earth miner Lynas Corp. Ltd. announced on May 1 that China Nonferrous Metal Mining (Group) Co. Ltd. (CNMC) recently inked an agreement to buy a 51.6 percent stake in the company through a planned share placement.

Under the terms of the agreement, CNMC will acquire 700 million new Lynas shares at a per-share price of AUD 0.36 ($0.26), or AUD 252 million ($185.23 million) in total.

CNMC also pledged to help arrange bank loans amounting to $104 million, which, along with the funds raised through the share placement, will be used to finance the first phase of Lynas' Mount Weld project in Western Australia. The first phase is designed with an annual output capacity of 10,500 tons of rare earth oxide in concentrate form per annum.

CNMC will also help secure bank loans to cover the funds required by the 21,000-ton second phase of the Mount Weld project, which is estimated to cost $80 million.

"The funding package will enable a restart of the Lynas rare earth project, with anticipated first production approximately 12 months from the receipt of funds, and will enable the company to fully implement the Lynas vision of being a global leader in rare earth for a sustainable future," Nicholas Curtis, executive chairman of Lynas, was cited as saying in the announcement.

The Australian miner suspended the Mount Weld project in February 2009, pending the finalization of funding.

The Mount Weld project is the world's richest rare earth deposit and currently contains 321,000 tons of rare earth oxide reserves grading 15.5 percent. The company also plans to build a downstream facility in Malaysia to process concentrate output from the Mount Weld project..

Upon completion of the deal, CNMC will appoint four additional directors to the Lynas board, increasing the total to eight. Meanwhile, the company's executive management team will remain unchanged.

The deal is still subject to various Australian and Chinese regulatory approvals, including the Australian Foreign Investment Review Board (FIRB), as well as Lynas shareholder approval.
Spurred on by the news of Chinese investment, Lynas' share price surged by 50.85 percent from the previous trading day to close at AUD 0.45 ($0.33) on May 1.

Interfax commentary: The Chinese government highly values the strategic importance of rare earth resources, and is therefore likely to support the deal in terms of both regulatory approvals and financial arrangements. Interfax believes that the Chinese government selected the state-owned nonferrous metals miner instead of the better-known Chinalco or Minmetals to act as the buyer in order to improve the chances of gaining Australian regulatory approval. Chinalco and Minmetals are seemingly more appropriate to conduct the deal as they already own major rare earth operations in China. However, in addition to their previous investment proposals, a further takeover bid may push their luck with the Australian authorities.

WISCO to establish JV to develop magnetite deposits in South Australia

Hubei Province-based Wuhan Iron and Steel Group Corp. (WISCO), the third-largest steel mill in China, has inked an agreement with Western Plains Resources Ltd. to establish a 50:50 joint venture to develop magnetite deposits at the Hawks Nest project in South Australia, Western Plains announced on May 4.

Initially, WISCO will inject AUD 25 million ($18.53 million) for a 50 percent stake in the joint venture, which will be mainly spent on a bankable feasibility study.

Later on, if the Chinese company decides to commit to the project, it will inject another AUD 20 million ($14.82 million) into the joint venture, without increasing its stake, and if it decides to abstain from further funding, it will see its stake diluted to 28 percent. In addition, WISCO will also purchase 12.1 million new Western Plains shares at a per-share price of AUD 0.25 ($0.19) for a total of AUD 3 million ($2.22 million), for an undisclosed stake in the Australian miner.

Western Plains noted that the joint venture agreement only relates to deposits at the Hawks Nest project, not the Peculiar Knob or Buzzard DSO hematite deposits. The estimated resources at Hawks Nest total 569 million tons of iron ore grading 35 percent.

WISCO will have the right to purchase 50 percent of the concentrate produced from the deposits.

The agreement is still subject to regulatory approvals from Australia's Foreign Investment Review Board and China's National Development and Reform Commission.

In the announcement, Western Plains said it is possible that the project could produce more than 10 million tons of iron ore concentrate per annum for more than 30 years. The company expects the feasibility study at the deposits to be completed in 2012.

Australian Securities Exchange-listed Western Plains focuses on the development of iron ore projects in South Australia.

In April 2009, WISCO agreed to buy a 19.9 percent stake in Consolidated Thompson Iron Mines Ltd., a Canada-based iron ore miner. In December 2008, WISCO agreed with Australian Securities Exchange-listed Centrex Metals Ltd. to acquire a 50 percent stake in five magnetite projects in South Australia's Eyre Peninsula and to buy a 15 percent stake in Centrax.