Chinese Racking Up More Mining Purchases

Chinalco Mess May Boost Chinese Deals in Australia
By Jodi Xu

Is there a bright side of the collapse of the $19.5 billion Rio Tinto-Chinalco deal? Well, it may actually help foster more deal making from China.

That is because the deal, would have given state-owned Aluminum Corp. of China an 18% stake in Rio Tinto and direct stakes in some mining assets, was so complicated and politically fraught that it was detrimental to other deals.

“Now that the Chinalco proposal is no longer on the table, each investment proposal from China can be judged on its particular merits,” said Ian McCubbin, head of the China practice at Australian law firm Deacons. The deal “appears to have delayed decisions on other proposals,” said McCubbin, the leader of China business for Australian law firm Deacons.

Other China deals certainly have experienced Australian headwinds. In March, Australia’s Foreign Investment Review Board rejected a proposal by China Minmetals Corp. to buy OZ Minerals Ltd. for $1.8 billion on the grounds that OZ Minerals’ Prominent Hill mines are in a military zone. Minmetals, which is backed by the Chinese government, ultimately won approval for a smaller, $1.2 billion purchase that excluded Prominent Hill and no longer was structured as a takeover. Instead, it was a purchase of assets that allows OZ Minerals to remain a listed company.

The $1.8 billion Ansteel-Gindalbie ‘Karara’ project was approved by the Australian government in May, but that was only after FIRB in March asked Ansteel to resubmit its application.

“The [Australian] Government will no doubt be pleased that the market relieved it of the responsibility of making a ruling [on the Chinalco deal],” McCubbin said, referring to the rise in Rio Tinto’s stock price that made the Chinalco offer less attractive to Rio Tinto’s shareholders.

This, in turn, might ease Australia’s nerves when it considers individual deals in light of Australia’s national interest.

In a long run, the tide of trade between the two countries is bound to rise. Australian law firms say they already are seeing evidence of broader interest from China in other sectors such as energy, infrastructure, and even areas like telecommunications, real estate and agribusiness, McCubbin said.

Australia-China two-way trade was 53 billion Australian dollars ($37.25 billion) in 2007, according to official Australian data. Greater trade and investment liberalization with China would deliver a consistent 0.7% increase in consumption in Australia, said Australia China Business Council.