Chinese State Owned Mining Companies on a Global Buying Spree

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M&A Activity

As we have previously reported, mining giant Rio Tinto, straddled with billions of dollars of debt may sell a stake in several strategic assets including iron ore, copper and aluminum to Chinese state-owned Chinalco for $12.3b. Debt-strapped mining companies find themselves in the uncomfortable position of needing to lower debt obligations by selling equity stakes to strange bedfellows. And the situation appears to be on the rise.

In a twist of events, another Australian mining company, OZ Minerals, the second largest zinc producer in the world, had their deal scuppered by Australia’s Foreign Investment Review Board when they rejected Minmetals’ $1.7b bid (more than enough to cover the mining company’s debt obligation of $1.3b coming due. According to the article, Australia has typically viewed these types of deals with an open mind based on business considerations. However, in light of the fact that the buyer(s) in these cases are Chinese state-owned companies, the Foreign Investment Review Board has pulled off the table the most strategic asset of OZ Minerals, the copper-gold mine, Prominent Hill. Apparently, that mine is next to a defense area.

But the decision to not allow Minmetals to buy into the more strategic assets of OZ Minerals raises some interesting questions around national strategic resources in general, national security (particularly if there are specific geography concerns as there are in this case) and foreign ownership of domestic assets. And the problem will only exacerbate as US dollar rich China goes on a buying spree as a result of its own easing of overseas investment regulations this week (see story here). These investments in key mining assets will pave the way for much more debate not just in Australia but around the globe. Stay tuned.

–Lisa Reisman

Postscript: Minmetals re-submitted a bid for OZ Minerals exclusive of the Prominent Hill mine. Dollar figures were not available at press time.

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