UPDATE: Australia Approves Valin Stake In Fortescue Metals
March 31 2009 - 4:25AM
Dow Jones News
Australia has signaled that it remains open to some investment
from China in its key mining sector, giving the green light to
Hunan Valin Iron & Steel Group's A$1.2 billion investment in
iron ore miner Fortescue Metals Group Ltd. (FMG.AU).
Australian Treasurer Wayne Swan has granted Valin approval to
take a stake in Fortescue of up to 17.55%, allowing the iron ore
miner to raise much needed funds by issuing shares to the Chinese
group.
A surge in Chinese government-backed entities in the mining
sector has sparked some concern in Australia with politicians from
minor parties expressing fears about China, a major customer,
potentially winning the ability to drive down prices.
The government last week blocked on such deal, the A$2.5 billion
takeover of OZ Minerals Ltd. (OZL.AU) by China Minmetals Nonferrous
Metals Co., on the grounds that one of the mines being bought is in
an Australian military zone.
Approval of the Fortescue deal will give heart to others trying
to win approval, most significantly Aluminum Corp. of China with
its landmark US$19.5 billion investment in Rio Tinto Ltd.
(RTP).
However, this deal is on a much larger scale and raises more
complex issues and Austock analyst Tim Gerrard said approval of
Valin's stake in Fortescue shouldn't be seen as a sign that other
Chinese investment would be approved.
"Each one is being assessed on a standalone basis and I wouldn't
see any read through for Rio," he said.
Swan said the undertakings given by Valin and agreed to by
Fortescue would deal with potential conflicts of interest on
pricing.
"These undertakings ensure consistency with Australia's national
interest principles for investments by foreign government
entities," he said in a statement.
"They ensure the appropriate separation of Fortescue's
commercial operations and customer interests, and support the
market-based development of Australia's resources."
Those who structured the Fortescue deal worked hard to put
together a proposal that would be easier to approve than the
Chinalco investment in Rio, with a slightly smaller holding and
only one China-appointed director instead of two.
Swan said Valin has given an undertaking that its nominee to
Fortescue's board will comply with the iron ore miner's director's
code of conduct and will submit a standing notice of potential
conflicts of interest relating to marketing, sales, customer
profiles, price setting and cost structures for pricing and
shipping.
The Valin appointee to the board will also comply with the
information segregation arrangements that have been agreed by the
two parties, Swan said.
Valin is buying 275 million shares in Fortescue from New York's
Harbinger Capital and will be issued with another 260 shares by
Fortescue for A$665 million to take its stake 17.4%.
Fortescue Chief Executive Andrew Forrest said approval of the
deal enhances the already strong relationship between Australia and
China.
"Fortescue has always enjoyed close and mutually rewarding
relationships with Chinese companies and Valin's investment in
Fortescue exemplifies and rewards the cooperative approach we have
taken," he said in a statement.
Fortescue may now look to proceed with an even bigger deal with
China; a large hybrid funding package it has been discussing with
China Investment Corp. to underpin its expansion plans.
Fortescue Executive Director Graeme Rowley confirmed Tuesday the
miner is "still having discussions with a number of groups."
A spokesman for Valin wouldn't immediately comment but said the
company may issue a statement later.
-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094;
alex.wilson@dowjones.com