Welcome to the October edition of the Australian Resources Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients who are interested in the Australian resources industry.
This publication brings together a brief summary of information on recently completed deals, market rumours and potential opportunities, and relevant regulatory updates.
On 18 September 2012, ASX-listed iron ore miner Western Desert Resources announced that it has received a conditional offer from China's Meijin Energy Group to acquire all of the shares in Western Desert Resources at A$1.08 cash per share (up to A$435 million on a fully diluted basis). On the last day of trading prior to the announcement, Western Desert Resources shares closed at A$0.855 per share. Western Desert Resources has recommended acceptance of the offer, subject to independent review and the absence of a superior bid. Western Desert Resources' Chairman, Rick Allert, has stated that the offer "represents excellent value for shareholders". In addition to shareholders, each option holder in Western Desert Resources will have the right to exercise its options and participate in the offer.
Following ASX-listed Whitehaven Coal's announcement on 10 August 2012 that it had granted Tinkler Group access to the due diligence process in order for Tinkler Group to further develop its takeover proposal, Whitehaven Coal has subsequently announced that the due diligence period expired on 23 August 2012 and that Whitehaven Coal has been advised by Tinkler Group that a formal binding proposal of A$5.20 cash per share will not be forthcoming.
On 2 October 2012, the High Court unanimously ruled that ASX-listed iron ore miner Fortescue Metals Group and its Chairman, Andrew Forrest, did not mislead investors in 2004 by misrepresenting the nature of the agreements that Fortescue Metals entered into with three Chinese companies. In giving its ruling, the High Court noted that Fortescue Metals' ASX statements in relation to the agreements "accurately recorded what the framework agreement provided". If Fortescue Metals and Andrew Forrest had lost this appeal, Andrew Forrest would have faced possible disqualification as a company director.
In related news, Fortescue Metals has announced that it has secured an underwritten commitment for a senior secured credit facility of up to US$4.5 billion. This credit facility will provide additional liquidity to Fortescue and will replace its existing bank facilities. In addition, Fortescue has announced that it has been approached by a number of parties who are interested in partnering with Fortescue in relation to certain assets. As the new credit facility does not require such transactions to occur, Fortescue has stated that it will only pursue such a partnership if it will add shareholder value.
As discussed in the September edition of the Australian Resource Sector Update, India's Aditya Birla Group and Prominvest AG have both made offers to acquire all of the outstanding shares in ASX-listed Northern Iron. On 17 September 2012, Northern Iron announced that it expected the detailed stage two due diligence process by Aditya Birla and Prominvest to be completed within the next few weeks. Both Aditya Birla and Prominvest have attended site visits of Northern Iron's operations in Norway.
It was announced on 12 September 2012 that Sentient Group, a Cayman Islands-based private equity firm, has increased its holding in ASX-listed Iron Road from 38.9% to 57.87%. Sentient increased its holding in Iron Road after it underwrote Iron Road's A$40 million capital raising, which was completed on 7 September 2012.
ASX-listed Australian Pacific Coal announced on 28 August 2012 that it was considering divesting its 10% free carry interest in its joint venture projects with Blackwood Resources Pty Ltd. Advertisements for Expressions of Interest have been placed. The joint venture projects relate to four coal exploration permits, namely Bungaban Creek, Kingsthorpe, Quondong (each of which is located in the Surat Basin in Queensland) and Laguna Creek (which is located in the Galilee Basin in Queensland). Two of the exploration permits have been granted (Bungaban Creek and Kingsthorpe) and two are still pending (Laguna Creek and Quondong).
ASX-listed iron ore miner Sundance Resources announced on 24 August 2012 that it has accepted China's Hanlong (Africa) Mining Investment Limited's proposal to revise its offer to acquire all of the issued shares in Sundance Resources via a Scheme of Arrangement from A$0.57 per share to A$0.45 per share. The reduction in price is reportedly due to the recent drop in iron ore prices. Hanlong's proposal was agreed, subject to the absence of a superior offer and the Independent Expert concluding that the Scheme of Arrangement is in the best interests of all shareholders. All regulatory approvals will be required by the second court date, which will be approximately 4 December 2012. The Scheme of Arrangement is expected to be completed by mid-December 2012.
On 20 August 2012, it was announced that ASX-listed iron ore miner Cleveland Mining Company had formed a strategic alliance with ASX-listed BC Iron. The strategic alliance was entered into in order to acquire and co-develop new iron ore projects in Brazil as joint venture partners. As part of the strategic alliance, BC Iron will acquire a 5% interest in Cleveland Mining through the issue of new ordinary shares at A$0.642 per share.
Recently Completed Deals
The takeover offer for Rocklands Richfield by Linyi Mining Group Co Ltd, a subsidiary of China's Shandong Energy, was closed on 12 September 2012 with all conditions fulfilled or waived. At the close of the offer, Linyi held a 98.12% interest in Rocklands. All Rocklands shareholders who validly accepted the offer received payment from Linyi Mining by 27 September 2012. A new Rocklands board has been appointed and Linyi Mining will proceed with the compulsory acquisition of the remaining Rocklands shares. It is anticipated that Rocklands will be delisted from ASX before 30 September 2012.
Market Rumours and Opportunities
The Daily Telegraph has reported that Knight Vinke, a 0.51% Xstrata shareholder, has announced that it rejects Switzerland's iron ore miner Glencore's proposal of an Xstrata-Glencore merger with 3.05 Glencore shares offered for each Xstrata share, and urges Xstrata's independent directors to seek the highest possible price and invite third party offers. It was reported that Knight Vinke is of the view that Xstrata has been significantly undervalued by Glencore.
It has been reported that ASX-listed Ironclad Mining is considering its options to raise up to A$90 million for stage two of its Wilcherry Hill iron ore project in South Australia. The report stated that Ironclad, who is currently finalising A$6 million of debt financing for stage one of its capital works program for the project, will most likely raise the A$90 million through a mixture of debt and equity.
Managing Director and CEO of ASX-listed Cuesta Coal, Matthew Crawford, has been reported to say that the company has been discussing partners for its greenfields projects. It has been reported that Cuesta hopes to secure the right partner within six to 12 months time, and is currently discussing opportunities with Chinese State-Owned Beijing Guoli Energy Investments Co. Beijing Guoli's Australian Mining Investment Director, Zheng Huaixi, was appointed as a non-executive director of Cuesta on 17 July 2012, following Beijing Guoli's A$20 million investment in Cuesta in May 2012.
The Hong Kong Economic Times has reported that China's iron ore miner China Hanking is looking for investment opportunities in the international market. Pan Guocheng, an Executive Director of China Hanking, was reported as saying that China Hanking was particularly considering potential takeover targets in Australia, but is yet to identify a specific acquisition target.
ASX-listed coal miner BHP Billiton has been reported in the Australian Financial Review to be focusing on selling assets that it does not operate itself, including iron ore and aluminium assets. It has been reported that BHP Billiton's joint venture partner, Alcoa, would be likely to acquire the joint venture assets. It has been further reported that Deutsche Bank believes that BHP Billiton could raise between US$10 billion and US$15 billion through such asset sales.
The Australian Financial Review has reported that Nathan Tinkler may sell his 21.4% stake in ASX-listed coal miner Whitehaven Coal in the near future. This report follows a number of rumours surrounding Nathan Tinkler's financial distress, including Mulsanne Resources Pty Ltd's (a company associated with Tinkler Group) failure to pay placement monies in accordance with the Share Placement Agreement for shares in ASX-listed coal miner Blackwood Corporation.
Coal miner Peabody Energy confirmed on 7 September 2012 that the sales process for Peabody's Wilkie Creek coal mine in Queensland remains under way and that negotiations with interested parties are continuing. This announcement followed a report by the Sydney Morning Herald that the sale had been deferred by Peabody.
ASX-listed iron ore miner Havilah Resources is reported to be seeking to divest a partial stake in its Maldorky iron ore project. It has been reported that Havilah Resources will consider a divestment of up to the value of A$20 million, and would prefer a strategic investor but would also consider an acquisition by an investment fund.
Mines Legislation (Streamlining) Amendment Act 2012 (Qld)
The Mines Legislation (Streamlining) Amendment Act 2012 (Qld) was assented to on 29 August 2012. The Act was passed largely in the same form as the Bill, which was discussed in more detail in the September edition of the Australian Resource Sector Update.
Stamp Duty on Exploration Permits
Under the Fiscal Repair Amendment Act 2012 (Qld), the Queensland Government now imposes transfer duty on the transfer of exploration permits. Exploration permits will also form part of a company's landholdings for landholder duty purposes. The amendments will come into force retrospectively, and will apply to all dutiable transactions occurring on or after 13 January 2012.
The Fiscal Repair Amendment Act 2012 (Qld) received Royal Assent on 21 September 2012. Where a party's liability for stamp duty arose between the period of 13 January 2012 and 20 September 2012, the party must lodge the relevant documents with the Queensland Office of State Revenue for stamping within 30 days after 21 September 2012.
In addition, the Fiscal Repair Amendment Act 2012 (Qld) has increased the top marginal rate of transfer duty from 5.25% to 5.75% and has increased the transfer duty top marginal rate threshold from $980,000 to $1 million.
The Fiscal Repair Amendment Act 2012 (Qld) will also clarify the Commissioner's view that other authorities, leases and licences are land for the purposes of transfer duty and landholder duty.
Mining Amendment Bill 2012
The Mining Amendment Bill 2012 (WA), which proposes to amend the Mining Act 1978 (WA), received its second reading speech on 15 August 2012. The Bill proposes to:
- provide that mining may be carried out on Commonwealth land with the written consent of, and subject to terms and conditions decided by, the Minister;
- include a new part in the Mining Act 1978 (WA), which will prescribe that a miner has a right, subject to conditions, to extract or remove minerals not exceeding the prescribed limit;
- provide that the registrar may issue permits to prospect for minerals on Crown land; and
- increase various penalties within the Mining Act 1978 (WA).
Amendments to the Clean Energy legislative package
The Clean Energy Legislative Amendment (International Emissions Trading and Other Measures) Bill 2012 (Cth) was introduced to Parliament on 19 September 2012. The Clean Energy legislative package, which implements the Carbon Tax, is proposed to be amended in the following ways:
- the Australian emissions trading scheme will be linked to the European Union Emissions Trading System (EU ETS), and Australian companies will be able to use EU ETS units to meet up to 50% of their Australian carbon tax liabilities from 1 July 2015. From 1 July 2018, European companies will have a corresponding right to use Australian carbon units to meet their EU ETS liabilities;
- the additional charge imposed on the surrender of international emissions units (including EU ETS carbon units) will be abolished;
- the carbon unit floor price of $15, which was to apply during the first three years of the flexible price period commencing on 1 July 2015, will be abolished, although the Minister will have the right to re-introduce a floor price if desired in the future; and
- the equivalent carbon price to be applied to synthetic greenhouse gases and some liquid fuel use is to be amended in order to ensure that it is more clearly equivalent to the carbon price payable by liable entities under the carbon pricing mechanism once it has been linked to the EU ETS.
Proposed changes to mining and petroleum reporting
ASX has released its exposure draft of proposed amendments to Chapter 5 of the ASX Listing Rules (Additional reporting on mining and oil and gas production and exploration activities) and related Guidance Notes. The draft includes an updated position on mining production targets. Simultaneously, an exposure draft of amendments to the JORC Code was released, and can be accessed on the JORC website. The exposure drafts are open for comment until 26 October 2012.
Before the exposure drafts were released, it appeared ASX and ASIC held different views about whether there could be a reasonable basis for publishing a production target based solely on inferred mineral resources, or on inferred mineral resources and exploration targets. However it appears that gap has been bridged, with early stage production targets being permissible in exceptional circumstances with appropriate cautionary disclosure.
More generally, ASX's exposure draft seeks to impose an enhanced reporting framework for the disclosure of mineral resource and ore reserve information, and to require oil and gas companies to report in accordance with SPE-PRMS (with additional requirements for material disclosures in relation to their resource assets). Helpfully, it is proposed that it will no longer be necessary to obtain the prior written consent of the relevant competent person for the subsequent re-publication of exploration results or resource or reserve estimates, provided no material information or assumptions have changed and the original announcement is cross-referenced in the subsequent public report (although it will still be required for annual reporting).
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Queensland budget announced
The Queensland budget was announced on 11 September 2012. Under the budget:
- Royalties on coal have increased where the value exceeds $100 per tonne. Currently, the royalty rate is 10% on the value above $100 per tonne. From 1 October 2012, the royalty rate will be 12.5% on the value between $100 and $150 per tonne, and 15% on the value above $150 per tonne. The Queensland Government has stated that it will guarantee that coal royalties will now be fixed until the end of the 2021-22 financial year.
- Farm-in arrangements, which are typically used in the mining sector as a mechanism to share risk, will be exempt from transfer duty. Normally, these arrangements will arise where an exploration permit holder grants another party the right to earn an interest in the permit through undertaking, or funding, exploration activities. This expenditure will be exempt from transfer duty.
To the extent that the amount of royalties paid by a company increases as a result of the increase in royalty rates, that company will be entitled to a reduction in its Mineral Resources Rent Tax liability. However, this reduction is of little assistance to a company who is not liable to pay Mineral Resources Rent Tax.
Alpha coal project receives federal approval
The Federal Environment Minister, Tony Burke, announced his decision on 23 August 2012 to approve the GVK-Hancock Coal Alpha Coal Project, which involves a coal mine and a supporting rail link in Central Queensland. Additional conditions were imposed for environment protection, including protection of the Great Barrier Reef.
Grants to Western Australia mining exploration
Western Australian Mines Minister, Norman Moore, announced that Round 6 funding under the Exploration Incentive Schemes Co-funded Drilling Program will be offered to drilling operations set for 2013. Applications for funding will close on 5 October 2012.
WA Pipeline Extension on Hold
Despite earlier comments to the contrary, Western Australian Premier, Colin Barnett, has advised that the Bunbury to Albany gas pipeline project will not be undertaken before the next state government election. However, the pipeline route and funding structure will be decided by October 2012.
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