Fortescue Metals shares were up by as much as 9.4% the morning after the Federal Government approved a $1.2 billion Australian dollar (US$815.6 million) Chinese investment in the company.
In mid-morning trade, Fortescue shares were up 15 cents, or 5.9%, at $2.70. With the approval, the Australian Federal Treasurer, Wayne Swan, allowed Hunan Valin Iron & Steel to buy up to 17.55% of Fortescue.
Mr Swan approved the investment subject to « formal and strict undertakings » in relation to the board seat Fortescue has allotted for the chairman of Valin. Valin is buying 275 million shares in Fortescue from New York’s Harbinger Capital, and Fortescue will issue another 260 million shares for A$665 million.
Among the conditions of the approval was that the Valin nominee to the board would submit a notice of any potential conflict of interest relating to Fortescue’s « marketing, sales, customer profiles, price setting and cost structures for pricing and shipping ».
The Foreign Investment Review Board had extended its examination of the Valin application by 30 days, compared with the 90-day extensions for Chinalco’s investment in Rio Tinto and China Minmetals’s investment in OZ Minerals. However, unlike Chinalco and Minmetals, which are state-owned enterprises, Valin is controlled by the Hunan provincial government. Fortescue is separately seeking $3 billion in funds from the China Investment Corp to expand its iron ore operations.
« We are talking to Chinese capital providers with a view to continue the steady march of Fortescue to be even a more meaningful player in the global iron ore industry, » said Fortescue’s chief executive, Andrew Forrest, last night.
The approval of the Fortescue deal will give hope to others that are trying to win similar approvals, most significantly Aluminum Corp. of China with its major investment in Rio Tinto Ltd. and a number of its mines. However, the proposed Rio Tinto deal is on a much larger scale and raises more complex issues, said Austock analyst Tim Gerrard. « Each one is being assessed on a standalone basis and I wouldn’t see any read through for Rio, » he said.
The government last week blocked the A$2.5 billion takeover of OZ Minerals Ltd. by China Minmetals Corp. on the grounds that one of the mines being bought is in an Australian military zone. OZ Minerals said Tuesday it received a fresh proposal from Minmetals that would exclude the mines that has caused the objection.
The Fortescue approval comes as investors and industry watchers are trying to guess how Australia’s government will decide on the proposal of Aluminum Corp. of China, or Chinalco, to invest US$19.5 billion in mining giant Rio Tinto.
The Chinese investors are offering much needed capital into Australia’s natural resources industry, but their state-owned status is sparking a political backlash in some corners of Australia.
China and Australia are also due to discuss their bilateral free-trade agreement soon.
Source : Konaxis
