Australia: Chinese investment in Australian mining assets - legal considerations

Introduction

First published in Mining Journal on 8 March 2013

Australia is China's number one destination for outbound investment. Between late 2006 and June 2012, China invested approximately US$45.1 billion in Australia, with 79 percent of this amount being invested in Australia's mining sector.

When comparing this figure to Chinese investment over the same period in other resource-rich jurisdictions such as the United States (US$42 billion), Brazil (US$25.7 billion), Nigeria (US$18.8 billion) and Canada (US$17.2 billion), it is clear that Chinese investors favour investment in the Australian market. The attractiveness of Australia, and Australia's mining sector in particular, to Chinese investors is a result of several factors including similar time zones between Australia and Beijing, relatively short distances between China and Australia's resource-rich north-west and north-east, and Australia's settled legal and political climate. Given that the vast majority of Chinese investment in Australia is through state-owned enterprises, these figures also show that China's SOEs (and the Chinese government agencies who approve foreign investment proposals by SOEs) are comfortable investing in Australia's mining projects.

Properly understanding the regulatory regime applicable to an Australian mining project is crucial to understanding the ability, limitations, costs and timing of the project's production and therefore the value of the project.

"Those who do not use local guides are unable to obtain the advantages of the ground"
Sunzi's Art of War.

Chinese investment in Australian mining - legal considerations

Australia's foreign investment laws

The first regulatory consideration for most Chinese investors seeking to invest in Australian mining is the application of Australia's foreign investment laws, in particular the Foreign Acquisitions and Takeover Act 1975 (Cth) (FATA) and Australia's Foreign Investment Policy Framework (Policy).

The FATA provides a legislative framework for the Australian Government to screen certain foreign investment into Australia and the Policy explains the Australian Government's approach to administering the FATA.

Foreign persons must notify the Australian Government under the FATA (or, in certain circumstances for foreign government investors, the Policy) if they wish to make certain investments in Australia. Relevantly for Chinese investors seeking to invest in the Australian mining sector, circumstances where notification and approval are required include:

  1. "direct investments" by a foreign government investor, for example the Chinese government or its related entities (including SOEs), irrespective of the value of the investment. A "direct investment" is defined loosely in the Policy as an investment of 10 percent or more in an Australian business that is made without any longer term strategic intent for control;
  2. the acquisition of a substantial interest (that is, an interest of 15 percent or above) in an Australian company (other than an Australian urban land corporation) whose assets are valued in excess of A$248 million (indexed annually);
  3. the acquisition of any interest in an Australian urban land corporation regardless of value (unless the corporation is listed on the Australian Securities Exchange (ASX), in which case the investor may acquire up to 15 percent of the corporation without approval);
  4. the acquisition of an interest in an operational mine if it is valued at A$54 million (indexed annually) or above; and
  5. the acquisition of a prospecting, exploration, mining or production tenement or other exclusive right to use land which has a term (including extensions) of more than five years, regardless of value.

Once notification is received in respect of a proposed investment, the Australian Treasurer considers whether or not the proposal is contrary to the national interest. If the proposal is contrary to the national interest, the Treasurer has the power to reject the investment. Where there is an obligation to notify the Australian Government of an investment, failure to notify can result in the investor being prosecuted or a divestment order being made.

Given the vast majority of Chinese investment in Australian mining has been through SOEs, it has very often been the case that Australian Government approval is required to be sought by Chinese investors prior to investing in Australian mining companies or assets. An advantage of the large number of applications which have been made to the Australian Government over the past five years in relation to Chinese investment has been that the Australian Government, perhaps more so than any other Government in the Western world, is now relatively comfortable with Chinese investors and Chinese SOEs in particular. It is unusual for an investment application to be rejected (although conditions may be attached to the approval).

If there is likely to be any sensitivity about a foreign investment proposal, thought should be given to structuring the transaction in a manner that will reduce the sensitivities (for example, what happens to the offtake can be just as important as the level of foreign control over the project) and the Foreign Investment Review Board (the Australian Government agency that processes foreign investment applications) welcomes approaches to discuss complicated transactions.

Investment preferences – ASX-listed companies

Looking at Chinese investment in Australian mining since late 2006, there is a clear preference for dealings with ASX-listed entities. These investments include full takeovers (such as the acquisition by Linyi Mining Group Co., Ltd of ASX-listed coal explorer Rocklands Richfield Limited), acquisition of controlling stakes (such as Ansteel Group Corporation's 35.8 percent holding in ASX-listed miner Gindalbie Metals Limited), or minority investments (such as Jilin Jien Nickel Co., Limited's minority stakes in several ASX-listed mining exploration companies).

Targeting ASX-listed miners or explorers has the advantage of allowing Chinese investors to leverage off publicly available information on such companies (including JORC standards), reducing investment risk compared to the acquisition of a private company or a greenfield investment.

A key consideration which Chinese investors must keep in mind when planning to invest in ASX-listed companies is the application of Australia's takeovers laws.

Under Australia's Corporations Act 2001 (Cth) (Corporations Act), in simplified terms, a person must not acquire an interest in more than 20 percent of an ASX listed company (20 percent rule), unless certain exemptions apply such as a takeover bid, scheme of arrangement, or as commonly used for placements, shareholder approval. It is important to note that unlike other jurisdictions, the 20 percent rule prohibits acquisitions above that threshold unless made pursuant to one of the specific limited exceptions. Australia does not have a mandatory bid rule (which allows a bidder to cross the relevant shareholding threshold provided they then proceed to make a takeover bid)

Post-acquisition issues

"Victory is obtained by those who make many calculations before proceeding. Defeat is suffered because few calculations are made beforehand. With many calculations, one can win; with few, one cannot. How much less chance of victory has one who makes none at all!"
Sunzi's Art of War

Many overseas investments in the Australian mining sector are successful but a number have faced difficulty after the initial acquisition phase when seeking to realise the potential of the asset. Often this will be because less attention or fewer resources are directed to post-acquisition considerations. Two key factors to consider from a legal perspective are the obligations which arise under Australia's environment and planning laws and logistics (in particular, access and development rights to key infrastructure such as rail and ports).

Environment and planning laws in Australia are relatively complex – on top of this, there is the potential for severe penalties if such laws are not complied with. There are many State, Territorial and Federal environmental and planning laws which will impact on mining projects and it can sometimes take many years to obtain all the required permits. Generally environmental approvals (and, in certain States, planning approvals) will be required before development of a mining project can commence. There may also be other environmental licences, such as for the construction of certain types of industrial plants, which need to be obtained before mining operations are able to be carried out. These laws and regulations will apply regardless of the owner of the project, including Chinese investors who may be less familiar with such legal requirements in Australia and will need to be aware of the impact of environment and planning laws on mining activities in Australia.

The success of mining projects is also usually dependent upon the ability to access or develop infrastructure. For example, roads, power, water, processing and tailings facilities, ports, and rail are requirements for most mining projects. Given the size of Australia, the location of its mineral deposits and the congestion of its ports in existing mining regions and the need for development of rail and port infrastructure in emerging mining regions, access to essential infrastructure is a key consideration for Chinese investors.

Conclusion

Given the complementary nature of the Australian and Chinese economies, it is to be expected that Chinese investment into Australian mining will continue for the foreseeable future. This article has outlined some of the key legal considerations which must be considered and addressed by Chinese investors looking to acquire mining interests in Australia.

In order to maximise a Chinese investor's chance of success it is extremely important to understand the Australian regulatory regime which will be relevant to the investment both before, during and after it is made. Going forward it is expected that Chinese investors will begin to diversify their investments in Australia, particularly into the agricultural and technology sectors. However, given the rapid urbanisation of China – a trend which is set to continue for many decades – it is likely that Australia's mining industry will continue to be the main driver of Chinese investment for many years to come.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.