swan blocks chinese takeover of oz mine, page-64

China ban pushes OZ to the brink

Jamie Freed. SMH March 27, 2009

OZ MINERALS will enter negotiations with China's Minmetals at the weekend in the hope of salvaging a smaller deal - and staving off administration - after the Federal Government's decision to prohibit the Chinese company from acquiring OZ's Prominent Hill mine.

OZ has $1.3 billion of debt due to be repaid on Tuesday, and unless its banking syndicate grants it an extension, it is likely to plunge into administration.

The Foreign Investment Review Board this week extended its review of the Minmetals transaction by 90 days, but the Government has already decided that because Prominent Hill is in the Woomera Prohibited Area in South Australia, it cannot be acquired by the Chinese company.

OZ's executive manager of business support, Bruce Loveday, said the decision had come as a surprise to the company, which had disclosed the Minmetals deal required the approval of the Department of Defence but did not warn that could be difficult to achieve.

Under the terms of OZ's merger agreement with Minmetals, it is not allowed to approach other companies that may be interested in buying Prominent Hill, but it can consider offers.

In its latest accounts, released last month, OZ said the new copper-gold mine, which cost $1.15 billion to construct, had a book value of $1.44 billion based on indicative offers it had received before it agreed to the Minmetals bid.

BHP Billiton and Barrick Gold are among the potential buyers of the asset. OZ recently trucked its first copper concentrate from Prominent Hill to BHP's nearby smelter at Olympic Dam.

"[Prominent Hill] is an extremely attractive asset," said an analyst for the researcher Fat Prophets, Gavin Wendt.

"It looks like there will be some bidding tension for the asset. The problem is, will that happen while the stock is still trading, or if the banks put the company into administration?"

OZ's assets are worth more than the funds it owes its lenders, which means the banking syndicate would be repaid in full if it chose to push the company into administration or receivership.

Before yesterday's surprising announcement, OZ's banks had been expected to grant the company a one-month extension on its loans.

"Certainly the one thing you don't want to have in an environment like this is any more uncertainty," Mr Loveday said.

Several sources said the most logical course of action for the banks would be to grant the extension, allowing OZ time to work out an alternative option to the full bid from Minmetals, although Mr Wendt warned it would take only one bank to pull the plug.

A spokesman for Minmetals said his company remained focused on "delivering an agreed solution to OZ Minerals that meets national interests, can satisfy lenders, deliver stability to employees and protect existing operations".

Mr Loveday said OZ, which was in a trading halt yesterday pending the announcement from the Government, expected to resume trading next week, despite the uncertainty surrounding the company's future.

Minmetals had offered 82.5c a share for the entire company, which had an enterprise value of $3.7 billion including its debt. However, the exclusion of the Prominent Hill mine is almost certain to lead to a sizeable reduction in the the offer, if one remains standing.

Source: The Sydney Morning Herald