- The Washington Times - Wednesday, April 1, 2009

SYDNEY (AP) - Struggling Australian miner Oz Minerals has struck a new, $1.2 billion deal with China’s Minmetals to work around government national security concerns about selling foreigners a mine on a sensitive military site.

The new plan unveiled Wednesday should satisfy the foreign ownership concerns and is the second deal between Australian miners and Chinese companies to move forward in as many days. A third, much bigger, proposal is still being scrutinized by regulators amid political pressure not to allow Australian assets to be sold to Chinese state-owned companies.

Oz Minerals, the world’s second-largest zinc producer and Australia’s third-largest diversified mining company, said the revised deal would allow the company to pay off all its debts and still have 600 million Australian dollars ($410 million) left over.

The company was facing collapse if it could not refinance AU$1.2 billion ($780 million) in debt this week, and the interest from China Minmetals Nonferrous Metals Co. Ltd. was a lifeline.

In a release to the Australian Securities Exchange, Oz Minerals said the plan was to sell eight mines and other exploration and development assets for $1.2 billion to Minmetals.

Oz Minerals would retain the Prominent Hill gold and copper mine, which is located on a military weapons testing site in South Australia state. It will also keep operations in Indonesia, Cambodia and Thailand and some listed equity interests.

Treasurer Wayne Swan, the government’s top finance official, said last Friday that Minmetals’s original plan to buy all of Oz Minerals could not be allowed if it included Prominent Hill because of national security concerns.

The new plan shaves about $1 billion from the original offer, and still requires shareholder and regulatory approval.

“We believe it represents an attractive offer for Oz Minerals and our shareholders,” Oz Minerals Chairman Barry Cusack said in the statement.

Oz Minerals share price plunged about 8 percent after ending a nearly weeklong trading halt on Wednesday, but recovered ground as news of the new deal filtered through.

“This looks like a great get out of jail card,” Credit Suisse analyst Michael Slifirski told reporters on a conference call.

CEO Andrew Michelmore said Oz Minerals would still try to sell the Martabe gold project in Indonesia _ one of the assets it keeps under the Minmetals deal _ but “there is no way we will be selling it for a fire sale price.”

Late Tuesday, Swan approved plans by another Chinese company to increase its stake in the Fortescue Metals Group to up to 17.55 percent, from its current 9.8 percent.

Under the deal, the state-owned Hunan Valin Iron and Steel Group will spend about AU$645 million ($440 million) that will help fund the next expansion phase of Fortescue’s iron ore mining operations in the Pilbara region of Western Australia. In return, Fortescue will issue new shares to Hunan Valin.

Swan imposed conditions including that Hunan Valin directors must declare any conflict of interest if they are to sit on Fortescue’s board.

Fortescue CEO Andrew Forrest said the deal with Hunan Valin could be viewed as a blueprint for how Australian companies can negotiate investment from China without surrendering control or raising the hackles of regulators.

He said the deal took more than five years to negotiate and that Hunan Valin would have “absolutely no control” or influence over the company’s management or marketing, and only one person on the board.

“This particular investment really does demonstrate how China, in a friendly way, in a minority way, in a totally non-controlled way, in a passive way, can invest in our operations without influencing the independence, direction or sovereignty” of Australia, Forrest told Australian Broadcasting Corp. on Wednesday.

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