oz boss less than a wizard, page-8

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Wizard for OZ

SHAREHOLDERS in OZ Minerals can thank their lucky stars.

More prosaically, they have been saved by the extraordinary Chinese hunger for even second – third? – class mineral assets.

For be under absolutely no misapprehension. If the Chinese hadn't been prepared to buy OZ without Prominent Hill, their shares would be worth zip this morning.

Both the directors of Rio Tinto and the Foreign Investment Review Board and Treasury should take a long and hopefully intelligently holistic look at what the OZ deal reveals.

And incidentally, tick it through with all due haste. Like, today. Before the Chinese change their minds.

OZ is a company with essentially two sets of assets. The blue chip 21st century Prominent Hill mine; and a bunch of rather tired 20th century – that's to say, almost literally – yesterday mines.

The Chinese have been prepared to pay $1.75 billion for the rubbish. Sorry, wonderful, if slightly pre-owned, "legacy" assets.

Provided OZ can get the cheque and clear it before the Chinese change their minds, the company will have just under 20¢ a share in cash free and clear.

Plus Prominent Hill which it says will be cash flow positive later this year.

As against the shares being worth zero, I'd say that's a pretty good outcome. Even if it falls a little short of the 82.5¢ a share that the Chinese were prepared to pay for the "legacy" assets plus Prominent Hill.

That's true whether or not they end up selling Prominent Hill to neighbour BHP Billiton, which now has two reasons to look askance at the intrusion of the Middle Kingdom.

If BHP had been able to buy Prominent Hill out of a distressed OZ it would have driven a hard bargain. Now OZ wont even have to sell – if it does it will be into a seller's market.

What makes the price paid by the Chinese so extraordinary is that they held all the negotiating cards. OZ had its corporate back to the wall. Further, they are paying a high price at the bottom of the commodity cycle.

This suggests they are both taking a typically longer-term view of resource values, looking well through even the next cycle.

And should alert Rio to the real value of its immeasurably better assets to a Chinese buyer. Except of course it's already "sold" them, subject only to shareholder and government approval.

Just as Rio got the value of Alcan hopelessly wrong as a buyer, it's made an even bigger mistake as a seller of its own long-held assets.

Quite possibly precisely because board and management is out of touch over there in London. Out of touch with resources and out of touch with China.

Just another brick in the wall arguing for Rio to be headquartered in Australia. For shareholders to reject the deal.

For Rio to have a $US10 billion rights issue. To then sit down and talk to BHP.