Oz Minerals shareholders approve Minmetals deal

Oz Minerals shareholders yesterday voted in favour of a sale of identified assets to China Minmetals Non-Ferrous Metals Company (Minmetals), one day after Minmetals increased its offer by 15% to $1.39 billion and after Oz Minerals' management assured shareholders no better deals had been tabled.

Oz Minerals said in an Australian Stock Exchange filing before the shareholder vote yesterday, that the enhanced offer valued Oz Minerals squarely within the $1.38 billion to $1.6 billion range that independent valuer Grant Samuel had estimated for the assets. It added that the bid was net of incremental costs, such as underwriting fees, break fees and corporate overheads, which other recapitalisation proposals would entail.
 
Minmetals is a state-owned enterprise and China's largest importer of copper with revenues of $21 billion. It also has interests in aluminium, tungsten, antimony and zinc.
 
"Minmetals initially offered to support Oz Minerals by bidding for the company at a time when Oz Minerals was facing serious financial difficulties," said Oz Minerals chairman Barry Cusack in a written statement. "Since February 2009, Minmetals has been the only entity that has offered Oz Minerals a complete solution to its refinancing issues. Their support has been constant and they have acted in good faith at all times."
 
Melbourne-headquartered Oz Minerals is the world's second largest producer of zinc and a substantial producer of copper, lead, gold and silver. It was formed in 2008 through a merger of Oxiana and Zinifex.

Minmetals is being advised by UBS. Oz Minerals is being advised by Caliburn Partnership and Goldman Sachs JBWere.
 
In February, Minmetals made an offer to buy 100% of the equity share capital of Oz Minerals for an equity value of A$2.6 billion ($2.1 billion). Oz Minerals was loss-making and had A$1.2 billion of debt due to be refinanced by February 27. On the back of the Minmetals bid, Oz Minerals' lenders extended this deadline until March 31.
 
But in early April the deal had to be restructured when the Australian Treasurer objected to the takeover on grounds of national security, because Oz Minerals' Prominent Hill mine is located near an Australian defence testing facility.

Within days the buyer and seller tabled a revised deal which envisaged Minmetals buying specified Oz Minerals assets for $1.2 billion. The assets excluded the strategically sensitive Prominent Hill mine, the Martabe mine, specific assets in Cambodia and Thailand and Oz Minerals' equity investments. Lenders agreed to further extend the deadline on the debt due to be refinanced.
 
But sensitivity in Australia has been mounting to the Chinese becoming owners of various Australian natural resources assets. Last Friday Rio Tinto walked away from a deal it struck in February with Chinese state-owned enterprise Aluminum Corporation of China (Chinalco), preferring to launch a $15.2 billion rights issue and enter a joint venture with Australian miner BHP Billiton. The Chinalco proposal would have seen the Chinese company invest $19.5 billion in Rio Tinto, split between $12.3 billion in aluminium, copper and iron ore joint ventures and $7.2 billion in two tranches of convertible bonds. Rio Tinto had been facing opposition from shareholders and the Australian public on the proposed Chinalco investment.

Oz Minerals' management may have been worried that rising nationalist fervour might sway its shareholders to vote no to the Minmetals deal. In its address to shareholders before the vote yesterday, Cusack reminded shareholders that the company had last year attempted to sell assets and raise debt and equity to meet its refinancing obligations. Cusack also said: "The willingness of Minmetals to renegotiate continuously over the ensuing days and their commercial acumen in effect saved the day" after the original deal was rejected by Australian regulators.
 
Cusack also sought to dispel rumours that it had received viable alternatives to the Minmetals proposal saying that the company had evaluated two offers it received on June 5 and neither was superior to Minmetals' proposal, in the best interests of shareholders, or provided a complete solution to Oz Minerals' refinancing issues.

The result of the shareholder vote indicates that shareholders saw the rationale underlying the deal with Minmetals and chose to support management to complete it.
 
Yesterday's events will have been closely followed in China as well. Some market commentators have criticised Rio Tinto's decision to abort the deal with Chinalco noting that the Chinese aluminium producer was willing to strike a deal with Rio Tinto at a difficult time in the commodity price cycle and capital markets, while Rio Tinto walked away once conditions improved enough for it to pursue other options.

But the Rio Tinto situation was never strictly comparable to Oz Minerals. Rio Tinto is one of the world's largest mining companies and rival mining giant BHP Billiton was a willing buyer for some of Rio Tinto's assets. An investment by a Chinese SOE, which is also one of Rio Tinto's largest customers, was always going to be highly sensitive.

Thus, the Minmetals deal going through is cause for celebration in two countries. In Australia, Kevin Rudd's government is keen to forge stronger ties with China, one of the largest customers for Australia's natural resources. And after the Chinalco deal failed, China will be pleased to have pulled off a success in Australia, and will perhaps be emboldened to pursue other deals, although those are more likely to be small- or mid-sized opportunities, rather than behemoths like Rio Tinto.