Chinese Enter The Battle Between Aztec Resources And Mt Gibson Iron.
By Our Man In Oz
Chinese takeaway has a whole new meaning in Australia’s iron ore industry. Not only is it the customer, not the cook, who is the Chinese player in the Australian game, but the purchase order from Shanghai is for the entire shop, not just a serving of noodles. And, if you think that’s complicated wait until you get to the details of what’s afoot in Oz where there’s full-blooded mayhem among the small fry of the iron ore patch, and trying to figure out who’s buying what is almost down to guesswork. In a way, this description is a cop out, but only just. The truth about the small iron ore stocks, especially Aztec Resources and Mt Gibson Iron, is that none of the locals really knows who owns what, when the game will end, or who’s on top.
This complicated muddle is best illustrated by the Aztec situation. Four months ago this company, which is re-developing the old BHP Billiton iron ore mine on Koolan Island, received an uninvited three-for-one share swap takeover from a local rival, Mt Gibson Iron. The plan, according to Mt Gibson, was to create a mid-tier player out of two smaller miners. London-based Cambrian Mining said it quite liked the idea and accepted the Mt Gibson offer for the 30 per cent it owned in Aztec, and earlier today lodged a notice saying at now owned 19.93 per cent of Mt Gibson. Other investors have been slow to follow Cambrian out of Aztec though a steady trickle has lifted Mt Gibson to almost 40 per cent of its target.
In normal circumstance a 40 per cent stake should constitute effective control, and perhaps it will. Aztec, despite making good progress with its Koolan Island project, has fouled its own nest somewhat by botching a royalty deal on the island and forced to cough up an issue of 78 million shares to buy out a strange mob from Sydney called Australian Royalties Corporation, about which nobody knows anything. ARC might even have stayed in the background, except it whacked a caveat on the Koolan Island project and demanded prompt settlement, giving Mt Gibson the ammunition to claim all Aztec shareholders had been misled.
If your head hurts at this point of the saga it might be best to walk away now because it just gets worse thanks to the intervention of even more mystery people – the chaps from China. In the latest twist, a Chinese company called Shanghai Merchants has snapped up a 10.6 per cent stake in Mt Gibson, and a 6.6 per cent stake in Aztec. Shanghai Merchants, with a foot in both camps, is backed by one of China’s biggest steel mills Shougang. It bought the Aztec shares on market, and the stake in Mt Gibson from an even more famous billionaire Chinaman, Lee Ming Tee, a prominent player in the Australian corporate world in the 1980s when he had a number of joint ventures with Malcolm Burne, chairman of AIM listed Golden Prospect.
But, before we get to hear from any of the major players in this little spat it is worth noting that Aztec and Mt Gibson are not alone in the great China iron ore takeaway. Other developments include Midwest Corporation, which started shipping iron ore this year and has been cementing its relationship with China’s biggest steel mill, Sinosteel, plus its friends China Railway Engineering and China Communications. Cape Lambert Iron, a company chaired by Ian Burston, who also chairs Aztec, is said to be in talks with Xingxing Iron Pipes over its Pilbara magnetite project -- and not to be outdone in the stampede for raw materials, Korea’s Posco and Japan’s Mitsubishi are working with Murchison Metals on its Jack Hills iron ore project.
Meanwhile, back at the hottest bid on the table, Aztec v Mt Gibson, a fifth extension has been claimed by the bidder with the offer now due to close on Friday. Mt Gibson said it was confident of victory, citing the royalty mess as a reason to make the switch. Aztec, in turn, claims to have the backing of its new shareholder, Shanghai Merchants. But, when Minesite caught up with Aztec chief executive, Peter Bilbe, he quickly confessed to not knowing precisely who was on what side, or would vote which way. “You wouldn’t exactly say Mt Gibson been overwhelmed with acceptances,” Bilbe said after noting that 30 per cent of its 40 per cent came from Cambrian. But, having made that point, Bilbe acknowledges that 40 per cent is a big stake and talks at some stage, or a Mt Gibson victory subject to Chinese approval, look inevitable.
“No, we’re not talking at the moment,” Bilbe said. “We have in the past had some informal discussions, and from that point of view my door is certainly open. I’m certainly amenable to discussions with them, doing that is obviously in the interests of shareholders.” Minesite listened attentively, but then plays the China card with a question. “Aren’t the Chinese in a position to pull both companies, Aztec and Mt Gibson, together?” “Look, I don’t know how that’s going to unfold,” Bilbe said. “That would be speculation and I’ll leave that to you. But, you’re quite right, Shanghai’s got about 7 per cent per cent of Aztec and 10 per cent of Mt Gibson. They’re a significant shareholder and we’ve only had preliminary discussions.”
“But,” asks Minesite, “who are they?” “Well, look, I don’t know much about them. They’re listed on the Hong Kong Stock Exchange and we’ll be finding out more shortly. They’ve indicated publicly that they support the Aztec management team, and support what we’re doing at Koolan Island. What that means at the end of the day we’ll just have to wait and see.”
Perhaps, but only perhaps, the sharp little war of words between Aztec and Mt Gibson will come to a head on Friday, though a sixth takeover bid extension is not out of the question, and Mt Gibson’s declaration that its offer has gone unconditional means it is accepting what it’s got. Logic says the Chinese steel mills are keen to see a bigger business emerge by bringing the two small Australian miners together, and Cambrian certainly seems to be in favour of that. The problems, however, are overcoming somewhat bruised Aussie egos, figuring out which Chinaman is in which other Chinaman’s pocket, and being alert to the a second possible move by the mercurial Lee Ming Tee who loves a good takeover brawl.
And after all that, it might be time to hear more from Cape Lambert and the Xingxing Iron Pipe Company – and certainly from Ian Burston who’s due in London in a few days and might explain what it’s like to be experiencing that great Chinese curse of “living in interesting times”.
CFE Price at posting:
0.0¢ Sentiment: ST Buy Disclosure: Held
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