Australia: Australian Resources Sector Update: December Edition

Introduction

Welcome to the December 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.

This is the final edition for 2012. We will return in 2013 with a combined January/February edition.

Recent Announcements

Further to the story in the October edition of the Australian Resources Sector Update in relation to ASX-listed coal miner Blackwood Corporation's legal action against Mulsanne Resources (a corporation associated with Tinkler Group), the Supreme Court of New South Wales made an order on 20 November 2012 that Mulsanne Resources be wound up under the Corporations Act 2001 (Cth). In addition, the court ordered that Mulsanne Resources pay Blackwood's costs of the winding up action.

ASX-listed coal miner New Hope Corporation announced on 14 November 2012 that it has amended its plan for future developments at its New Acland coal mine in Queensland. The new plan will extend the current operation of the mine to approximately 2029 and will provide an annual A$530 million injection into the south-east Queensland economy. The amount of land used for mining activities will be more than halved, and production will be reduced by at least 25%.

As discussed in the October and November editions of the Australian Resources Sector Update, ASX-listed iron ore miner Sundance Resources has accepted China's Hanlong (Africa) Mining Investment Limited's offer to acquire all of the issued shares in Sundance Resources for A$0.45 per share. Sundance Resources issued the Scheme Booklet on 12 November 2012. The directors of Sundance Resources have unanimously recommended that shareholders vote in favour of the resolution to approve the scheme, in the absence of a superior proposal.

On 5 November 2012, Sundance Resources announced that Hanlong has secured a commitment letter from China Everbright Bank Co Ltd for US$438 million. The Sundance Resources Board has confirmed that the China Everbright Bank commitment letter is acceptable for the purposes of the Scheme Implementation Agreement. This commitment letter, in conjunction with the China Development Bank commitment letter for US$1.022 billion, is greater than the amount required by the Scheme Implementation Agreement.

As discussed in the November edition of the Australian Resources Sector Update, ASX-listed iron ore miner Arrium has received a takeover proposal at an indicative price of A$0.75 per share from a consortium consisting of Noble Group, POSCO Australia Pty Ltd, National Pension Service of Korea, Korea Investment Corporation and Korea Finance Corporation. Arrium announced on 31 October 2012 that it has received a second non-binding, highly conditional takeover proposal at A$0.88 per share from the same consortium. The second proposal incorporates almost all of the conditions which were attached to the consortium's previous proposal, including the due diligence and debt financing conditions. After considering the offers, Arrium announced on 6 November 2012 that its Board has concluded that neither of the proposals are in the best interests of shareholders, as they significantly undervalue Arrium and contain a high number of conditions which creates significant risk.

As discussed in the November edition of the Australian Resources Sector Update, ASX-listed Northern Iron has provided both of its bidders, India's Aditya Birla and Prominvest AG, with an extension for the submission of their final binding offers to acquire all of the shares in Northern Iron. On 3 November 2012, Northern Iron announced that it had been informed by Aditya Birla that, following its stage two due diligence investigations, it was not in a position to submit a stage two proposal. Aditya Birla indicated that its reasons related to the continued variability in production at Northern Iron's Sydvaranger iron ore project in Norway. Northern Iron also announced that, on 2 November 2012, Prominvest advised Northern Iron that it was continuing to work on a proposal. However, Prominvest did not submit a final bid in accordance with the extended timetable.

Northern Iron has indicated that, although it remains receptive to proposals, it has decided to conclude its Strategic Review. The Northern Iron Board stated that Northern Iron has a sound future as an independent company and is well equipped to pursue its short term objectives.

ASX-listed iron ore miner Western Desert Resources announced on 30 October 2012 that China's Meijin Energy Group will not be proceeding with its proposed acquisition of Western Desert Resources. Western Desert Resources stated that this decision not to proceed with the takeover was surprising and it is Western Desert Resources' view that the decision was not based on the Western Desert Resources business or its potential.

On 29 October 2012, ASX-listed coal miner Endocoal announced that it has entered into a Scheme Implementation Agreement with China's U&D Mining for the acquisition of all of the issued shares in Endocoal for A$0.38 per share. U&D Mining has also provided an A$4 million loan to Endocoal to avoid Endocoal having to raise additional equity prior to scheme implementation. This loan facility will be used to meet working capital requirements and to progress Endocoal's application for a mining lease for its Meteor Downs South coal project in Queensland. In the absence of a superior proposal and subject to the independent expert's opinion, the Endocoal Board unanimously recommends that all Endocoal shareholders vote in favour of the scheme.

On 26 October 2012, ASX-listed Whitehaven Coal announced that its largest shareholder, Tinkler Group Holdings, has made a series of demands on the Whitehaven Coal Board. Tinkler later published a letter to shareholders in the Australian Financial Review stating that he planned to vote against all resolutions at Whitehaven Coal's upcoming Annual General Meeting.

Advised by Corrs, Whitehaven Coal's board (led by Mark Vale) and management (led by Tony Haggarty) received overwhelming support at the annual general meeting despite Mr Tinkler, who holds 19.4 per cent of Whitehaven Coal, voting against the miner's remuneration report and the election of five directors.

Market Rumours and Opportunities

It has been reported that India's GVK Group is in discussions with almost 20 companies in relation to its A$10 billion 79% interest in the Alpha coal project in central Queensland. It has been reported that GVK would consider selling down its interest in the project to 51%. A number of Korean and Chinese companies are reportedly involved in these discussions.

ASX-listed Iron Ore Holdings' Managing Director, Alywn Vorster, has been reported to state that Iron Ore Holdings is looking for an investor for its Maitland River magnetite project in Western Australia. The company is reportedly seeking to raise A$500 million in order to build a road network and develop a port to export the mined magnetite. Vorster has been reported to state that the company was speaking to possible joint venture partners for the project and that Iron Ore Holdings has already been approached by Chinese and Japanese companies including Japan's Sumitomo Corporation. Vorster has reportedly stated that Iron Ore Holdings is waiting for a concept study to be completed within the next month before approaching potential bidders, and is still waiting for approval from the Western Australian government to build the port, which is expected by the end of 2012.

It has been reported in the Australian Financial Review that ASX-listed iron ore miner Fortescue Metals is considering a potential divestment of its rail and port business. Macquarie Capital has reportedly been appointed by Fortescue Metals and is holding talks with QR National, Atlas Iron, Brockman Resources and Gina Rinehart in relation to combined Pilbara infrastructure and whether those companies would be willing to pay to access Fortescue Metal's infrastructure. The Australian Financial Review later reported that Fortescue Metals was not under pressure to sell assets. Nev Power, Chief Executive Officer of Fortescue Metals, has reportedly indicated that Fortescue Metals has been approached by a number of local and overseas parties seeking to invest in its assets.

It has been reported in the Australian Financial Review that ASX-listed iron ore miner Apollo Minerals is looking for a strategic partner to assist in the development of its Commonwealth Hill iron ore project in South Australia. The project reportedly has development costs of US$333 million. It has been further reported that India's Jindal Steel and Power is likely to be interested, as it currently holds a 9.25% stake in Apollo Minerals.

ASX-listed Bauxite Resources is reported to be considering forming a joint venture to diversify into coal and iron ore by the second quarter of 2013, and it has reportedly been in discussions with potential partners that may be able to assist in the development of non-bauxite minerals on its Western Australian tenements. Bauxite Resources is reportedly receptive to approaches from potential joint venture partners.

ASX-listed coal miner Resource Generation's Managing Director, Paul Jury, has reportedly indicated that Resource Generation is attempting to raise US$230 million in equity through a 're-IPO' of the company as part of an attempt to raise US$630 million for its coal operations in South Africa. In addition to the equity raising, it is reported that Resource Generation is in the process of obtaining binding offers from six banks to provide a US$397 million senior debt facility. Resource Generation announced on 13 November 2012 that the credit approval process is taking longer than expected and that it is trying to obtain the binding offers as soon as possible.

Regulatory Updates

Mining Rehabilitation Fund Act 2012 (WA)
The Mining Rehabilitation Fund Act 2012 (WA) was assented to on 5 November 2012. The Act secures long term funding to rehabilitate abandoned mine sites in Western Australia by requiring tenement holders to pay a levy into the Mining Rehabilitation Fund. The Act includes provisions in relation to the establishment, payment and use of levy payments paid into the Mining Rehabilitation Fund. The Act also allows the Chief Executive Officer of the Department of Mines and Petroleum to declare land as an abandoned mine site if mining operations have been carried out and have ceased, and to then allow rehabilitation works to be carried out on that land.

Environment Protection and Biodiversity Conservation Amendment Act 2012 (Cth)

The Environment Protection and Biodiversity Conservation Amendment (Independent Expert Scientific Committee on Coal Seam Gas and Large Coal Mining Development) Act 2012 (Cth) was assented to on 24 October 2012.

The Act establishes a committee that will advise on research priorities and bioregional assessments. The committee will also provide the relevant minister with expert scientific advice relating to coal seam gas and large coal mining development proposals that may have a significant impact on water resources. Federal Minister for Sustainability, Environment, Water, Population and Communities stated on 10 October that "the work of this committee will provide the community, landholders and industry with greater certainty about the decision making process for coal seam gas and large coal mining developments".

Economic Development Bill 2012 (Qld)

The Economic Development Bill 2012 (Qld), which was introduced into the Queensland Parliament on 1 November 2012, seeks to give the Coordinator-General greater control over what were previously known as "significant projects" requiring an Environmental Impact Statement (EIS) under The State Development and Public Works Organisation Act 1971 (Qld) (SDPWO Act). These projects will now be known as "Coordinated Projects". The Bill will make the following changes:

  • The Coordinator-General must now consider a number of matters before making a Coordinated Project declaration, such as Queensland Government policies, a pre-feasibility assessment of the project and the capacity of the proponent to undertake and complete the EIS for the project.
  • The Coordinator-General may cancel the declaration on a number of grounds, including if the proponent for the project changes or if it is in the public interest to cancel the declaration.
  • The Coordinator-General may now require an assessment of changes to a project rather than leaving this to the proponent's discretion. This will apply both to new projects as well as to existing projects that have already gone through the EIS process.

Other News

Queensland Government will reduce red tape and regulation
Queensland Premier, Campbell Newman, announced on 9 November 2012 that the Queensland Government will reduce project approval time to two years and will remove red tape and regulation for existing mines. Premier Newman stated that this would be achieved by requesting the Federal Government to give the Queensland Government complete control over planning approvals for new mines.

Mineral Resources Rent Tax to remain unchanged
Minister for Trade and Competitiveness, Craig Emerson, reportedly stated that the Mineral Resources Rent Tax will not be amended despite the tax failing to raise revenue in its first three months of operation. The Federal Government's mid-year economic forecast has revised the expected revenue to be generated by the Mineral Resources Rent Tax in 2012-13 from A$3.7 billion to A$2 billion.

Asian Century White Paper

The Australia in the Asian Century: White Paper was released on 28 October 2012. The White Paper states that, despite a medium-term trade decline, mining is still likely to continue to be one of the fastest growing sectors in Australia. The White Paper re-affirms the Federal Government's position in relation to foreign investment by state owned enterprises, stating that the Government will continue to scrutinise foreign investments from these entities to a higher degree regardless of the investment's value.

New ASX Disclosure Rules for Mining, Oil and Gas Companies
The ASX has released an amended Chapter 5 of the ASX Listing Rules which outlines new reporting requirements for ASX-listed mining, oil and gas exploration and production companies. These changes are aimed at enhancing disclosure and improving the consistency and transparency in the reporting of information. The new rules will commence on 1 December 2013 and will be accompanied by an updated Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (JORC Code), which is expected to be released in December 2012. ASX has issued Guidance Note 32 to assist companies with their revised disclosure requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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