China Inc. steps up foreign acquisitions; bids for Oz Minerals

China’s state-owned companies are ratcheting up their acquisitions of struggling mining companies that have been hit by the financial crisis and poor metal prices.

Just days after Aluminum Corp. of China or Chinalco said it would invest US$19.5 billion in London-based Rio Tinto (RTP-N, RIO-L), China Minmetals Corp, a state-owned mining, metallurgical, construction and investment company, is offering to buy Australian miner Oz Minerals (OZL-A) for A$2.6 billion (US$1.7 billion). Should it get 100% ownership, the Beijing-based company has also agreed to repay OZ Minerals’ A$1.2 billion debt.

Minmetals is bidding 82.5 Australian cents for each share of Oz Minerals, a 50% premium to the company’s last traded price on Nov. 27 2008. The Melbourne-based company voluntarily suspended the trading of its shares on Dec. 1 as it sought to refinance debt. On Feb. 17, the day after the bid was made public, Oz Minerals’ shares advanced 17.2% to close at 64.5 per share on the Australian Securities Exchange.

The world’s second-largest zinc producer, Oz Minerals was formed in 2008 through a merger of Oxiana and Zinifex. The company also produces copper, lead, gold and silver.

Among its assets is Century, a massive open-pit zinc mine in northwestern Queensland, which produces about 500,000 tonnes of the metal each year. In 2008, Century produced 887,090 tonnes of zinc concentrate and 58,622 tonnes of lead concentrate.

The company also owns the Sepon copper-gold mine in south-central Laos, which produced 93,072 oz. gold in 2008, and the Rosebery underground mine on Tasmania’s northwestern coast, which produces zinc concentrate, lead and copper concentrate, in addition to gold dore. In 2008 Rosebery churned out 84,939 tonnes of zinc, 28,674 tonnes of lead, 2,062 tonnes of copper, 30,675 ounces of gold and 2.98 million ounces of silver.

Oz Minerals also owns 100% of the Prominent Hill copper-gold project in South Australia. It expects to commission the mine this month with concentrate sales likely to start in the first quarter.

Exploration projects and joint ventures in Australia, Asia and North America, including 2,600 sq km. of exploration tenements in Canada’s Nunavut Territories, as well as the Izok Lake and High Lake zinc-copper projects in the Arctic, which it obtained through its mid-2007 acquisition of Wolfden Resources, are all attractive to resource-hungry China.

Under the scheme of arrangement, Oz Minerals can proceed with a previously announced asset sale program of Martabe, its gold-silver project in Indonesia’s North Sumatra province, and Golden Grove, an underground mine in Western Australia, with the understanding that Minmetals’ price will increase if the aggregate net sale exceeds A$425 million. Last year Golden Grove, about 450 km northeast of Perth, produced 139,900 tonnes of zinc concentrate, 18,467 tonnes of copper concentrate, 47,755 ounces of gold, 3.16 million ounces of silver, and 13,330 tonnes of lead concentrate.