February 16, 2009 / 8:57 AM / 11 years ago

China's Minmetals offers $1.7 billion for Oz Minerals

SYDNEY (Reuters) - Chinese state-owned metals trader Minmetals agreed to buy Oz Minerals Ltd (OZL.AX), the world’s No.2 zinc miner, for $1.7 billion, the second Chinese resources firm to come to the rescue of a debt-laden Australian miner in less than a week.

Aluminum Corp of China (Chinalco) agreed last week to inject $19.5 billion into Anglo-Australian miner Rio Tinto Ltd/Plc (RIO.AX) (RIO.L), which faces a first installment on its $39 billion in debts.

“I can’t believe the hollowing out of the resources industry, it’s happening very quickly,” said Andrew Harrington, mining analyst at Paterson Securities in Sydney.

Minmetals and Oz Minerals said the A$2.6 billion deal, at 82.5 cents per share, or 50 percent above Oz Minerals’ last traded price, will pay off all the Australian firm’s outstanding debts and maintain its mining activities, which were under threat of being sold or liquidated.

“Minmetals intends to continue to operate Oz Minerals’ portfolio of assets, and its acquisition will provide the opportunity to support the development of Oz Minerals’ assets and projects,” Minmetals Chairman Zhou Zhongshu, said in a statement.

Oz Minerals said its board unanimously backed the deal in the absence of a better offer.

“This was the only offer we’ve received for the whole of the company,” Managing Director Andrew Michelmore told a conference call.

There was speculation last year that Minmetals, active in importing iron ore, copper, zinc and other industrial staples into China, was interested in making a counter-offer for Rio Tinto while it was being pursued by BHP Billiton (BHP.AX) BLT.L. BHP later ditched its $66 billion offer for Rio.

Oz Minerals, which ranks behind Canada’s Teck Cominco TCKb.TO in zinc output and also owns, copper, gold and nickel mines, has made no secret of its struggle to quickly sell mines and refinance debt.

Michelmore, who on Friday warned Oz Minerals faced A$1.9-A$2.2 billion in impairments on underperforming mines, said Minmetals provides “a solution to our financial predicament.”

Oz Minerals has been trying to unload assets across Australia, Southeast Asia, North America and North Africa to help meet a February 27 deadline to repay a A$140 million loan.

Failure to make the payment threatened to force Oz, whose shares were suspended in November, into bankruptcy. Trading in Oz Minerals shares will resume on Tuesday.

Minmetals, which needs the blessing of Australian foreign investment regulators before it can sign off on the deal, expects an answer by April.

Some analysts question the Australian government’s willingness to let Chinese state-owned firms take big stakes in local miners at a time when low commodity prices have left companies vulnerable to overseas predators armed with state funds.

“It looks like a decent price if all the hurdles are passed. But the hurdles look a bit onerous,” said Tim Schroeders, Pengana Capital portfolio manager. “It’s far from a done deal.”

A spokesman for Australia’s Treasurer, who would have a final say on any deal involving a foreign takeover of an Australian company, declined to comment, and officials at the Foreign Investment Review Board, which makes recommendations to the Treasurer, were not available for comment.

Rio Tinto has said it is confident that Australia will approve its tie-up with Chinalco.

Oz Minerals said it would continue to pursue the sale of its undeveloped Martabe gold and silver mine in Indonesia and the Golden Grove zinc and copper mine in Australia.

Minmetals, China’s biggest metals trader, has signed contracts with partners to develop mines in Latin America and build up mills in Russia.

It has two listed units, Minmetals Resources (1208.HK) in Hong Kong, which controls most of its aluminum business, and Shanghai-listed Minmetals Development Co Ltd (600058.SS), a likely vehicle for its nonferrous business.

Oz Minerals was created after miner Oxiana took over Australian rival Zinifex to spread beyond copper and gold mining. Its market valuation has dropped about A$6 billion since the merger was completed in July.

Goldman Sachs JBWere and Caliburn Partnership advised Oz Minerals, while Minmetals is advised by UBS.

($1=1.529 Australian Dollar)

(Additional reporting by Bruce Hextall and James Grubel in SYDNEY and Alfred Cang in SHANGHAI)

Editing by Ian Geoghegan

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