China Inc. Steps Up Foreign Acquisitions

China’s state-owned companies are ratcheting up their acquisitions of struggling mining companies that have been hit by the financial crisis and poor metal prices.

Just days after Aluminum Corp. of China (ACH-N) or Chinalco said it would invest US$19.5 billion in London-based Rio Tinto (RTP-N, RIO-L), China Minmetals, a state-owned mining, metallurgical, construction and investment company, is offering to buy Australian miner OZ Minerals (OZMLF-O, OZL-A) for A$2.6 billion (US$1.7 billion). Should it get 100% ownership, the Beijing-based company has also agreed to repay OZ Minerals’ A$1.2-billion debt.

In an all-cash offer that has been unanimously backed by the board of OZ Minerals, Minmetals is bidding A82.5¢ for each share of the company, a 50% premium to the company’s last traded price on Nov. 27, 2008. The Melbourne-based company voluntarily suspended the trading of its shares on Dec. 1 as it sought to refinance debt. On Feb. 17, the day after the bid was made public, trading in OZ Minerals’ shares resumed, advancing 17.2% to close at A64.5¢ per share on the Australian Securities Exchange.

Minmetals and OZ Minerals had been in takeover talks since December.

The world’s second-largest zinc producer, OZ Minerals was formed in 2008 through a merger of Oxiana and Zinifex. The company also produces copper, lead, gold and silver.

Among its assets is Century, its massive open-pit zinc mine in northwestern Queensland, which produces about 500,000 tonnes of the metal each year. In 2008, Century produced 887,090 tonnes of zinc concentrate and 58,620 tonnes of lead concentrate.

The company also owns the Sepon copper-gold mine in south-central Laos, which produced 93,070 oz. gold in 2008, and the Rosebery underground mine on Tasmania’s northwestern coast, which produces zinc concentrate, lead and copper concentrate, in addition to gold dor. In 2008, Rosebery churned out 84,940 tonnes of zinc, 28,670 tonnes of lead, 2,060 tonnes of copper, 30,680 oz. gold and 2.98 million oz. silver.

OZ Minerals also owns 100% of the Prominent Hill copper-gold project in South Australia. It expects to commission the mine this month, with concentrate sales likely to start in the first quarter.

Exploration projects and joint ventures in Australia, Asia and North America, including 2,600 sq. km of exploration tenements in Nunavut, as well as the Izok Lake and High Lake zinc-copper projects in the Arctic, which OZ obtained through its 2007 acquisition of Wolfden Resources, are all attractive to resource-hungry China.

Under the scheme of arrangement, OZ Minerals can proceed with a previously announced asset sale program of Martabe, its gold-silver project in Indonesia’s North Sumatra province, and Golden Grove, an underground mine in Western Australia, with the understanding that Minmetals’ price will increase if the aggregate net sale exceeds A$425 million. Last year Golden Grove, about 450 km northeast of Perth, produced 139,900 tonnes of zinc concentrate, 18,470 tonnes of copper concentrate, 47,760 oz. gold, 3.16 million oz. silver, and 13,330 tonnes of lead concentrate.