Interesting article from Alan Kohler regarding buying up mining companies. Surely JRV would be a target??
Commentary 7:45 AM, 17 Feb 2009
Alan Kohler
People's Republic of Oz TOP News
The idea of Federal Treasurer Wayne Swan refusing permission for China Minmetals to buy Oz Minerals is quite laughable.
China is the buyer of first and last resort for the world’s growing band of bankrupt mining companies. The alternative for Oz Minerals is receivership – and quite soon, apparently.
As with Rio Tinto, the only alternative buyer is BHP Billiton, which is close to being the only other entity in the world with a solvent balance sheet. But BHP’s balance sheet is a little less solvent than China’s and its ambitions therefore a little more tempered.
Australia, though, is in no position to refuse China’s cash: a steady flow of foreign investment was necessary even in the best of times because of Australia’s persistent current account deficit; in the worst of times it is even more necessary.
But the idea of a communist government prowling the world picking up distressed capitalist businesses is pretty amusing in itself, let’s face it.
China has the world’s largest foreign exchange reserves because for a decade or more it has been holding down the value of its currency to improve the competitiveness of its exports.
US Treasury Secretary Timothy Geithner mentioned this the other day, but at the G7 finance ministers’ meeting on the weekend he thought better of it, and along with everyone else at the G7 “softened” his views on this most sensitive issue.
In any case, China is now on the acquisition trail. For example Minmetals chief Zhou Zhongshu said last week that his company would be pursuing overseas mergers and acquisitions to “shore up growth”. Two weeks ago he bought a copper and gold mine in Peru; this week it’s the Prominent Hill mine in Australia via the takeover of Oz Minerals.
Exactly how this next phase of this strange country’s development plays out is hard to imagine.
How will reporting lines work? Is there any such thing as corporate governance? Is Zhou Zhongshu in charge, and to whom does he report? How does his incentive scheme work – on return on equity or something else entirely?
Zhou’s message on the company website says China Minmetals is: “...under the care of the Central Committee of the Communist Party of China and the State Council as well as the correct leadership of the State-owned Assets Supervision and Administration Commission of the State Council".
Does this mean Oz Minerals will also be under the care of the Central Committee of the Communist Party of China, and if so – what on earth does that mean?
Japan’s Zaibatsu system was hard enough to get one’s mind around in the 60s and 70s when they were on the acquisition trail for Australian resources, but takeover by communism? It’s too much.
Obviously Zhou Zhongshu and his counterpart at Chinalco, Xiao Yaqing, are rather different kids of communists to, say, Mao Tse Tung – they are ambitious and entrepreneurial capitalists, or something.
But all of the money for their acquisitions comes from the China Development Bank which, according to its website, is under the “direct leadership” of the State Council.
How the money finds its way to China Minmetals and Chinalco is, of course, completely unknown. Presumably it is simply new equity from the sole shareholder, although Minmetals is apparently listed in both Hong Kong and Shanghai.
Anyway, come on down Zhou Zhongshu and Xiao Yaqing – we need your yuan, and we don’t care where it comes from.
Saying “yes” will be one of the easiest decisions Wayne Swan will make this year.
JRV Price at posting:
0.5¢ Sentiment: None Disclosure: Not Held
