April 1, 2009 / 4:19 AM / 11 years ago

OZ Minerals agrees to new Chinese offer

MELBOURNE/SYDNEY (Reuters) - Australian miner OZ Minerals (OZL.AX) agreed to sell most of its assets to China’s Minmetals for $1.21 billion (846 milllion pounds) on Wednesday, securing Australian mining’s second big Chinese investment in as many days.

The OZ Minerals deal, renegotiated after Australia’s government blocked a takeover by the state-owned Chinese firm, promises to rescue the world’s No.2 zinc miner from a debt crisis and gives Minmetals all but two of OZ Minerals’ main assets.

It follows approval on Tuesday of a $438 million Chinese investment in iron ore miner Fortescue Metals Group (FMG.AX) and comes as Australia’s Foreign Investment Review Board (FIRB) is looking at Chinalco’s $19.5 billion investment in global miner Rio Tinto (RIO.AX) (RIO.L).

A decision on the Chinalco-Rio deal could take until June.

“What this really does show is the goodwill from Minmetals to actually come back with a proposal that’s attractive to shareholders, suppliers and customers and meets the government’s requirements...,” OZ Chief Executive Andrew Michelmore said.

Australia had on Friday rejected Minmetals’ original $1.8 billion bid for OZ because OZ Minerals’ prized Prominent Hill mine was near a military weapons-testing range in the deserts of outback Australia.

The new deal excludes the Prominent Hill mine.

OZ shares, resuming trade for the first time since the original takeover was knocked back, fell as much as 19 percent as hedge funds who had bet on the initial deal going ahead bailed out. The stock later recovered to trade flat at A$0.555, although well below Minmetals original offer of A$0.825 a share.

Analysts said the deal at least appeared to safeguard OZ Minerals immediate future and allow it to pay down debt. As a result of the new deal, OZ Minerals’ lenders have extended a debt repayment deadline on A$1.1 billion (529 million pounds) by a month to April 30.

“It’s potentially a reasonable solution out of a very murky situation,” said Perennial Growth’s West.

SWIFT DECISION

Minmetals said it expected a swift government decision on the revised deal as much of the material had already been reviewed.

“If the FIRB’s objections were about Prominent Hill, this effectively addresses that issue, so I’d think it would get FIRB approval,” said Neil Boyd-Clark, portfolio manager at Fortis Investment Partners.

Minmetals, looking to use OZ’s assets as a platform to expand outside China, would pick up the Century, Golden Grove, Rosebery and Avebury mines in Australia, the Sepon operations in Laos, mines in Canada and other exploration and development assets.

The new deal also excludes the Martabe gold-silver prospect in Indonesia and OZ Minerals’ stakes in listed companies, including Toro Energy (TOE.AX).

OZ Minerals was created last year through a merger of Oxiana and Zinifex. Caught between plunging commodity prices and the global debt crunch, the company careened to the brink of collapse in January when it secured a lifeline from its bankers.

If OZ Minerals pays off all its A$1.3 billion in debt, excluding convertible bonds, it would have around A$600 million in cash after the deal.

A sale of the Martabe prospect would give some comfort to lenders if the Minmetals deal did not go ahead by June, Michelmore said. The price OZ was discussing for Martabe, in its books at A$210 million, was “not a fire sale price,” he said.

Former Oxiana chief Owen Hegarty has been eying Martabe, but has yet to line up financing for a bid.

Michelmore said the group was also open to bids for Prominent Hill, which recently started producing and is expected to be cash flow positive in the second half of the year.

Top global miner BHP Billiton (BHP.AX)BLT.L is seen as the most likely suitor for the mine, valued by OZ at A$1.4 billion, as its Olympic Dam copper and uranium mine is nearby.

But fund managers said they could see OZ as a viable company, anchored by Prominent Hill.

“I suspect they’d look to grow themselves,” said Boyd-Clark.

Michelmore said it was too early to say what OZ would do with the A$600 million in cash it would be left with.

($1=1.438 Australian Dollar)

Editing by Mark Bendeich & Ian Geoghegan

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