Foreign Correspondence

[Amaunet]

China deals seen among Australia WMC defence options


Brace yourselves, the dragon is flying free and we are going to be hit with high prices in much more than just oil and gas.

-Am

China deals seen among Australia WMC defence options
15 November 2004

MELBOURNE: Australian miner WMC Resources Ltd. would likely consider tie-ups with resource hungry Chinese companies as a defence against a $A7.4 billion takeover bid from Xstrata Plc., analysts said on Friday.


Chinese companies are showing increasing interest in pursuing offshore investments in projects across a range of commodities.

WMC Resources owns the Olympic Dam project in South Australia, the world's eighth largest copper resource and largest uranium resource, and is the third-largest producer of nickel in concentrate.

Analysts said WMC was likely to be pursuing a number of options for the company, after late last month rejecting Xstrata's $A6.35 a share offer as too low.

Olympic Dam has had some operational difficulties, but Chinese investors driven by strategic supply needs could find a joint venture or equity investment in WMC's strong resource base particularly attractive, said Perennial Growth Management partner Ken West.

"It certainly is a possibility," he said. "They are not really driven domestically by returns on capital, they are driven socially by trying to secure high-quality production."

WMC Resources Ltd. Chief Executive Andrew Michelmore will visit China next week, coinciding with an industry conference in Beijing, prompting speculation that discussions on a range of possibilities could be on the agenda.

AdvertisementAdvertisement"It is in their interests to court as many people as they can," Commonwealth Securities analyst Peter Harris said.

Olympic Dam is forecast to produce at least 220,000 tonnes of copper in 2004 and more than 4,000 tonnes of uranium, and the company is studying a $A4 billion expansion that could increase output to 500,000 tonnes of copper and 15,000 tonnes of uranium.

Analysts said joint ventures in Australian projects appeared to be the more likely path for Chinese companies, but equity investments in companies were also a possibility.

State-owned China Minmetals is currently in talks to buy 100 per cent of Canadian zinc and nickel company Noranda Inc., in a deal expected to be worth more than $5 billion.

China's top copper producers such as Jiangxi Copper Co. Ltd. have for some years been searching abroad for copper resources as domestic output lags demand.

China's Export Import Bank and the influential State Development and Reform Commission set up a lending scheme this month to aid Chinese companies buying foreign mining assets.

Michelmore will meet with the Jinchuan Group., with which WMC already has a deal to supply 120,000 tonnes of nickel-in-matte between 2005 and 2010. The two companies also have a China nickel exploration agreement.

Most analysts expect Xstrata will make another offer, but have also not ruled out competing bids from the world's largest diversified miner, BHP Billiton Ltd./Plc., or Rio Tinto Ltd/Plc.

Other potential bidders include Brazil's Companhia Vale do Rio Doce (CVRD).

WMC Resources shares rose 1.2 per cent to $A6.97 on Friday in a flat wider market.


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