koreans look to secure raw material supplies

Koreans look to secure raw material supplies

by: Sarah-Jane Tasker
From: The Australian
April 09, 2012 12:00AM

KOREAN companies are increasing their focus on Australian miners with a mandate from the government to secure the supply of raw materials, strengthening the competition pool for the nation's key export commodities.
The South Korean government is using both policy and financial incentives to encourage the large, family-owned conglomerates to increase their equity ownership over key materials that are critical to Korea's industrial base.

Mike Elliott, Ernst and Young's global mining and metals leader, said it was clear there was a real increase in momentum coming out of Korea.

"It is a relatively new push and we have been seeing a step-up of activity over the last six months but we have particularly seen it in this calender year," he said.

Unlike the push by China into Australia's resources sector, the Korean companies are not government owned and need to source their own acquisition funding. But to support the need to secure raw materials, the Korean government is offering funding for some deals.

Mr Elliott said it was similar to the model used by Japanese companies, where the government will provide financing and if the project is not successful, they do not have to pay all the finance back.

"It is biased towards increasing the risk appetite to chase things, limiting on the downside risk and then if there is upside, they have to share a portion of that with the government," he said.

The obvious targets are thermal coal and metallurgical coal but the needs of Korea's large vehicle and engineering industries include copper, tungsten, rare earths and lithium.

"Companies have basically been given the word to make some acquisitions around these minerals," Mr Elliott said.

He said the takeover of Australian-listed Cockatoo Coal by SK Group, illustrated the heightened interest from Korea.

The Australian coal company agreed last month to a $313 million placement from SK Networks at a significant premium to its trading price, to give SK a 40 per cent stake in the group.

Major Korean shareholders, Korean Resources Corporation, POSCO and Korea Electric Power Corporation will hold a combined 51 per cent of Cockatoo's shares following completion of the transaction.

The deal is the first time the Koreans will have control of a local miner.

http://www.theaustralian.com.au/business/mergers-acquisitions/koreans-look-to-secure-raw-material-supplies/story-fn91vdzj-1226321671971