customers to benefit from merger

Customers benefit from merger: Zinifex Font Size: Decrease Increase Print Page: Print Andrew Trounson | April 19, 2008
MERGER partners Oxiana and Zinifex are seeking to tap into growing customer unease at the dominance of mega-mining companies by offering closer alliances, including offering equity in new projects.

Andrew Michelmore, chief executive of Zinifex and CEO-elect of the $10 billion merged group, said customers could provide additional capital and help de-risk overseas developments, but noted also that it wasalso politic to bring in customers.

Mr Michelmore's comments come as Chinese state-owned enterprises are becoming more aggressive in securing exposure to the massive raw materials needed to underpin China's fast-paced industrialisation.

BHP Billiton's $160 billion bid for Rio Tinto has spooked a Chinese steel industry worried about iron ore and coal supplies, and China's Chinalco has grabbed a 9 per cent stake in Rio in a move potentially aimed at derailing the merger.

"What you are seeing with these huge companies is that they are growing to get control and concentration in the industry," Mr Michelmore said yesterday after addressing the Melbourne Mining Club.

"The customers, whether they are countries or large companies, are feeling that they are being squeezed."

He said customers did not view a merged Oxiana-Zinifex as a threat, especially as the company was largely focused on producing ore concentrates rather than controlling the value chain through to smelting.

That, he said, presented an opportunity to more closely align with customers, though Mr Michelmore said the company at this stage did not need to bring in customers on any of its existing projects.

"We have just started those initial talks," he said.

Mr Michelmore, a former head of WMC, earlier told the Mining Club that the big state-backed miners and sovereign wealth funds around the world were well aware of the strategic importance of scarce high-quality mineral assets.

And he noted that efforts by the likes of mining giants such as BHP and Brazil's Vale to seek mergers was a sign that the big corporates were also taking a bullish strategic view.

However, he said global capital markets were failing to factor in long-term strategic value.

Mr Michelmore worked with Russian aluminium oligarch Oleg Deripaska after BHP took over WMC in 2005. He said that gave him an insight into the long-term strategic thinking of the Russians, whom he described as "ferociously parochial and patriotic".

The looming appointment of Mr Michelmore to head the combined group has caused unease among Oxiana shareholders that their talismanic CEO, Owen Hegarty, will be retiring to be a non-executive director.

But Mr Michelmore yesterday stressed that Mr Hegarty would continue to be actively involved.

"We want Owen and he has said he wants to be involved," Mr Michelmore said, noting that he himself had been a pleased Oxiana shareholder over the past three to four years.