China Minmetals Non-ferrous Metals Company yesterday tabled a revised deal for Oz Minerals, proposing to buy specified assets for $1.2 billion, down from the $1.7 billion that it originally offered for the entire company.
The revision was forced on the firms after the Australian government last week rejected their February proposal on grounds of national security. The original deal had Minmetals, a state-owned enterprise and China's largest importer of copper, buying 100% of Oz Minerals. The Australian company had agreed to sell some specific assets to other parties before closing the deal with Minmetals, but the Prominent Hill mine was not on the list of disposals, and it is this asset that the Australian government is sensitive about. Prominent Hill is located near an Australian defence testing facility.
The revised deal will see Minmetals buy defined Oz Minerals assets, including Sepon, Golden Grove, Century, Rosebery, Avebury, Dugald River, High Lake, Izok Lake and others on a "cash free, debt free" basis for $1.2 billion. Oz Minerals will retain the strategically sensitive Prominent Hill mine, the Martabe mine, specific assets in Cambodia and Thailand and its equity investments.
"This structure allows Oz Minerals' shareholders to retain full ownership of Prominent Hill," says Andrew Michelmore, managing director and CEO of Oz Minerals. "Shareholders will now be allowed to retain full exposure to the long-term growth profile of Prominent Hill."
Minmetals is being advised by UBS. Oz Minerals is being advised by Caliburn Partnership and Goldman Sachs JBWere.
The new deal provides Oz Minerals with a solution, albeit a differently structured one, to the pressing debt issues it is facing and which have prompted it to find a suitor. The Melbourne-headquartered company, which is the world's second largest producer of zinc and a substantial producer of copper, lead, gold and silver, said it can use the money it receives to retire all its debt except the convertible bonds and still have a cash balance of A$600 million ($414 million).
Oz Minerals said in its Australian Securities Exchange filing that its lenders have agreed to extend its refinancing deadline by one more month until April 30. The debt was originally due to be refinanced by February 27, but after the Minmetals offer was announced in February, the lenders extended the deadline to March 31.
The new deal is subject to approval by Australia's Foreign Investment Review Board and competition watchdog as well as other customary approvals, both in Australia and China.
Michelmore also highlighted that Prominent Hill has now begun production and is expected to become cashflow positive in the second half of this year. After the deal, Oz Minerals will have the financial resources to continue to develop the mine. The company has earlier said that Minmetals is the only bidder willing to take over Oz Minerals in its entirety, thus it seems unlikely that a competing bid will be tabled.
Minmetals' original offer gave all shareholders the opportunity to exit at 82.5 Australian cents per share, which represented a 50% premium to the last traded price of Oz Minerals on November 27. The Australian firm was suspended from trading from early December until the deal was announced in February as it struggled to restructure its debt.
Oz Minerals' shares fell 4% yesterday to 53.5 Australian cents as shareholders digested the fact that there is no cash on the table for them now. Some analysts are speculating that a pared-down Oz Minerals could become the target of a takeover, but if so, that will be some time in the future as the Minmetals deal isn't slated for completion until June -- assuming that approvals are received by early May.
On Tuesday Chinese steel maker Hunan Valin Iron and Steel Group got clearance to buy a 17.4% stake in Fortescue Metals Group, subject to fairly straightforward conditions regarding maintaining a Chinese wall between Valin, which is a customer, and Fortescue. The only Chinese outbound M&A deal into Australia now awaiting approvals is Aluminum Corporation of China's (Chinalco) proposal to invest $19.5 billion in Australian diversified metals and mining company Rio Tinto through direct equity and joint ventures. Like Oz Minerals, Rio Tinto is struggling to service its debt burden.
Sounding out regulators to ensure that key approvals for deals will be forthcoming is a key role played both by the advisers and the parties themselves and presumably both buyer and seller, as well as the banks they hired, had done this in advance of announcing the February deal. Indeed, when he announced the revised offer from Minmetals yesterday, Michelmore told reporters that approvals for the initial deal, which included Prominent Hill, had not been expected to be an issue.
But Minmetals' ability to digest and move forward from the decision which was announced by the Australian government on Friday, constructively and quickly, bodes well for future cross-border M&A deals, which will no doubt continue to be subject to the same imponderables. By Tuesday Oz Minerals had flagged to shareholders that a new deal would be announced shortly although negotiations on price seemed ongoing. And by yesterday the new deal was ready to be tabled.
