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After Australia’s regulatory agency blocked the first bid by China Minmetals to buy Oz Mineral on grounds of national security, the deal has been rekindled by a $1.2 billion bid to buy the mines themselves, rather than the company.
The $1.2 billion bid includes the largest zinc mine in Australia, as well as other mines in places such as Laos and Canada. Opening up a multinational mining firm allows the company to produce profits against a multitude of currencies and hedge the risk that metals prices will continue to decline. After peaking in 2007 and 2008, metals have fallen as demand from real estate developers has been crushed along with the market.
Why This Deal is Approved
The initial bid by Minmetals was $2.6 billion for the entirety of the company; however. Australian Treasurer Wayne Swan feared that China might be buying too much of Australia’s natural resources. At the time of the decision, $20 billion in takeovers from China were sitting on the desk of the Treasury. With the new bid, Oz Mineral will be allowed to keep many of its mines in operation and wipe away its debt obligations to hold $600 million in pure cash.
Backing Off, Albeit Slightly
The revised bid is a step backward for China Minmetals, which would prefer to take the company as a whole. However, in a time of increased protectionism and decreased interest in foreign companies, Minmetals will have to see if Australia will accept the purchase of mines, instead of a whole institution. Both Chinese regulators and Oz shareholders will have to approve of the measure.
Will Shareholders Agree?
Getting shareholder approval might just be the most difficult portion of the new deal. Much of Oz Mineral’s stock was sold near .82 per share, where China Minmetals was supposed to buy the company. Under the new deal, no transfer of capital between Oz and shareholders will be recorded. Instead, shareholders will remain equal holders of a much smaller firm with zero debt obligations. For the long term investor, approving the deal is easy; however, quick in and out swing traders may have their own problems with the new purchase.
A Limited Time Deal
Oz Mineral recorded a huge loss of $2.5 billion in February, which ate up much of the company’s cash reserve. Time is of the essence for Oz Mineral, who must either clean up its balance sheet or hope that metals prices skyrocket; at this point, it might be better to liquidate some assets to move forward with zero debt.