Ann: Placement , Share Purchase Plan and Underwri, page-130

re: Ann: Placement , Share Purchase Plan and ...
Posted on the FMS site, but somewhat relevant to SDL. I say this because it appears China is still wanting to lock in long term demand from RIO by offering credit to fund RIO's projects. Im hoping this doesnt go thru so less ore is available over the coming months/years, more demand for SDL at higher prices. In the end, it proves iron ore is a global commodity that is hard to substitute and will always be in need. China recognises this.

BEIJING has offered Rio Tinto an unlimited line of credit, potentially worth $US20 billion ($30.6 billion) or more, to develop major mining projects in Australia, China and around the world.

The offer from the state-owned Export-Import Bank of China, or Exim Bank, will help Rio Tinto expand at a time when frozen debt and capital markets have starved the mining industry of funds.

It will also deepen the relationship between Australia and China, adding an element

of reciprocity to Chinalco's ambitions to take a bigger stake in major Australian resource projects.

By helping Rio Tinto get involved in Chinese mining projects, the agreement would help counter claims that China was closed to foreign investors

at a time its state-owned companies were expanding in more open business regimes such as Australia.

However, the proposed loans will add another layer of complexity to the federal Government's deliberations over state-owned Chinalco's $US19.5 billion investment in Rio Tinto, Australia's second-biggest miner behind BHP Billiton. The Exim offer is tied to the success of the Chinalco deal.

The undertaking from Exim was delivered to Rio Tinto on February 12, the same day the miner inked its deal to sell Chinalco $US12.3 billion worth of stakes in key assets and $US7.2billion of convertible bonds.

The deal will deliver Chinalco an 18 per cent stake in Rio Tinto and stakes of between 15 per cent and 50 per cent in landmark Australian mining projects such as the Hamersley iron ore operations in Western Australia and the Weipa bauxite mine in northern Queensland.

Chinalco, which is wholly owned by the Chinese Government, promised at the time the deal was struck to introduce Rio Tinto to potential financiers and project partners in China.

In a letter sent to Rio Tinto chief financial officer Guy Elliott last month, and which has been obtained by The Weekend Australian, Exim deputy general manager Feng Zengbing hailed the alliance as a "key milestone" for the Chinese economy.

"To further facilitate the co-operation between Chinalco and Rio Tinto, China Exim Bank has been discussing the possibility of ... providing a long-term loan facility to Rio Tinto to fund future joint projects with Chinalco and/or other eligible Chinese companies ... We are highly confident of our ability to provide the proposed debt financing," he wrote.

It is understood funding would be provided at attractive commercial rates to reflect the significantly lower cost of capital in China. Projects that could be funded with loans from the bank include the $US10 billion expansion of Hamersley iron ore output to 320 million tonnes a year, and the massive Simandou iron ore project in Guinea, West Africa, the first stage of which will cost more than $US6 billion. Chinalco will partner Rio Tinto in both projects if the deal is approved.

Rio Tinto is also interested in pursuing significant mining projects in China, including the possible development of coking coal and copper deposits.

Rio Tinto managing director of strategy Doug Ritchie said there were no limits on the amount of funding available from Exim. "In a capital-constrained world, this will allow us to undertake projects pretty much of any magnitude we wish to," he said.

Rio Tinto, which last year rejected a $US135 billion takeover bid from BHP Billiton, turned to Chinalco after rejecting other options to reduce the $US38 billion debt pile left over from its much-criticised acquisition of Alcan.

The company is lobbying shareholders and the federal Government on the merits of the deal -- the biggest foreign investment by a Chinese company and the biggest by any foreign company in Australia.

Shares in Rio Tinto yesterday rose $1.85 to $52.02 -- their highest since BHP Billiton walked away from its takeover bid in November.

The Foreign Investment Review Board is expected to get a 90-day extension on its deliberations on Monday. It will make a recommendation to Wayne Swan, who is expected to make a final decision on the Chinalco transaction by mid-year.

If approved, Rio Tinto shareholders will then vote on the deal.

Under the six guidelines for foreign investment proposals issued by the Treasurer early last year, the first issue to be considered was to what extent an investor's operations were

independent from the relevant government. That would include whether funding arrangements could change the amount of control.

This month, Exim chairman Li Ruogubank said the bank would consider helping Chinalco fund its Rio Tinto investment.

Chinalco and Rio Tinto have proposed a series of strict conditions to limit Chinalco's control over Rio Tinto and over the individual operations it is investing in. Exim funds trade projects on behalf of the Chinese Government, with a mandate that includes the implementation of state policies in industry and foreign trade.

If the projects Exim funds are classed as construction projects, such as railways and ports, at least 15 per cent of the capital cost has to be used on Chinese goods and services. Resources projects have no such caveat.

Mr Ritchie said the agreement should be looked at as a way to establish new relations between Australia and China. "We're talking about establishing a 'Rudd Bank' because we're worried about foreign capital outflows, and here you have something that is unique at the moment, that could presumably be worked on by others, and that is going to have a massive future beneficially for Australia," he said.

ABN Amro analyst Warren Edney said Chinese banks would become increasingly important in funding mining projects because they had access to funds that European and US banks did not.