Welcome to the April edition of the Australian Mining Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients who are interested in the Australian mining industry.
This publication brings together a brief summary of information on recently completed deals, market rumours and potential opportunities, and relevant regulatory updates.
The Australian Mining Sector Update was previously known as the Australian Resources Sector Update, but has been renamed to distinguish it from its sister publication, the Australia Energy Sector Update, which focuses on the oil and gas industry. If you do not currently receive the Australian Energy Sector Update but would like to, then please contact us at email@example.com.
Further to our story in the March 2013 edition of the Australia Resources Sector Update, ASX-listed Gujarat NRE Coking Coal released a statement on 18 February 2013 advising its shareholders to reject the takeover bid made by Jindal Steel and Power (Australia). The reasons for Gujarat's Directors' unanimous recommendation to reject the offer included that the market price of Gujarat shares have exceeded the Offer Price since the announcement of Jindal's Offer, that Jindal has recently paid more than the Offer Price for Gujarat shares, and that the Offer Price does not adequately reflect Gujarat's future prospects.
ASX-listed Whitehaven Coal announced on 8 March 2013 that it has acquired Itochu Corporation's interest in the Vickery South Coal Project in New South Wales, and Whitehaven now owns 100% of the project. The Vickery South Coal Project is located adjacent to Whitehaven's Vickery Coal Project, providing Whitehaven with a strategic opportunity to consolidate both projects. The consideration for the transaction was the issue of 11.47 million Whitehaven shares to Itochu. Itochu's exclusive off-take and sales agency arrangements relating to the Vickery South Coal Project were terminated as part of the transaction.
On 19 March 2013, ASX-listed iron ore miner Apollo Minerals announced that it has signed a non-binding term sheet with Jindal Steel and Power (Australia) in relation to a major investment by Jindal into Apollo's iron ore projects, including Commonwealth Hill in South Australia, Mt Oscar in Western Australia and Kango North in Gabon, West Africa. The strategic partnership will be created by transferring Apollo's wholly owned subsidiaries which hold the company's iron ore tenements into a special purpose vehicle "NewCo", which will be incorporated and demerged from Apollo's non-ferrous mineral rights. NewCo will undertake an IPO, through which Jindal will acquire a majority interest by investing A$10 million. NewCo will then apply to be listed on the ASX. Formal documentation of the agreement is expected to be executed over the coming months.
ASX-listed Iron Ore Holdings (IOH) announced on 28 February 2013 that it has executed a binding formal agreement with ASX-listed iron ore miner Mineral Resources in relation to the development of IOH's Iron Valley Project located in the Central Pilbara Hub. Mineral Resources has agreed to develop the project on IOH's behalf after IOH secures final mining approvals, with construction expected to begin in the September quarter of 2013. Whilst IOH will remain the tenement owner, Mineral Resources will operate the mine and purchase a minimum annual tonnage of product from IOH at prices which remain confidential to the parties. This arrangement will last for the lesser of a 20-year term or upon Mineral Resources purchasing 200 Mt of product. Following the announcement of this deal, IOH shares rose 20% to A$1.17, while Mineral Resources shares rose 3.5c to A$11.495.
Recently completed deals
The Queensland Government has divested A$806 million worth of shares that it held in ASX-listed rail network owner and operator Aurizon Holdings, reducing its shareholding from 18.2% to 8.9%. The shares were sold at a price of A$4.03 per share to institutional and sophisticated investors. Queensland Treasurer, Tim Nicholls, has confirmed that the proceeds from the sale will be used to reduce the State's debt. The Queensland Government also received a 4.1% share dividend from Aurizon on 27 March 2013 on the shares that it has sold.
Market Rumours and Opportunities
The Australian has reported that global asset manager Brookfield is believed to be among the parties in discussions to acquire an interest in ASX-listed iron ore miner Fortescue Metals' port and rail assets. Reportedly, Fortescue is seeking to sell 30% to 40% of the infrastructure assets and has prepared a shortlist of bidders, anticipating a deal to be completed by 30 June 2013. Other bidders are said to include a Middle Eastern sovereign wealth fund, Chinese groups and Canadian pension funds. It has been reported that the deal could raise US$3 billion.
It has been reported that Taiwan's largest steel producer, China Steel, is seeking to acquire interests in PCI coal mines in Queensland's Bowen Basin. Although China Steel has not yet announced its financial advisor for the proposed transaction, Morgan Stanley is reported to be pitching targets. China Steel hopes to acquire a minority stake in a large-cap company, or projects with production of 1 to 2 Mtpa of low-volatile hard coking coal with moderate to low ash and sulphur, by the end of 2013. Companies with projects in the Bowen Basin region that media reports suggest could interest China Steel include ASX-listed companies Bandanna Energy, Stanmore Coal and Carabella Resources. Further, ASX-listed coal miner Cougar Energy is reportedly interested in speaking with China Steel in relation to a potential sale of Cougar Energy's Mackenzie coal project.
Managing Director of ASX-listed Stanmore Coal, Nick Jorss, has reportedly stated that the company is seeking a joint venture partner to take a minority stake in its Belview underground coking coal deposit in Queensland. It has been reported that Stanmore has allocated A$6-7 million for further drilling, and plans to undertake a prefeasibility study at Belview in late 2013. Likely partners for the Belview project are reported to include large trading houses or steelmakers from China, India, Japan, South Korea and Taiwan. Stanmore reportedly welcomes approaches from potential joint venture partners.
It has been reported that Coal India, an Indian state-run coal mining company, is planning to set aside US$6.43 billion for the acquisition and development of coal mines in countries including Australia by 2017. Coal India has put forward an expression of interest invitation to investment bankers, as well as owners of coal assets or their representatives, for any potential acquisition opportunities. The tender is open until 27 May 2013 and Coal India is reportedly considering 15 proposals put forward by a panel of international bankers. Details of the type of coal assets that Coal India is seeking have not been released.
Further to our story in the January/February 2013 edition of the Australian Resources Sector Update, the Australian Financial Review has reported that Shenhua Energy could lodge an unsolicited low-ball offer for ASX-listed Whitehaven Coal, abandoning plans for a joint venture. Reportedly, Whitehaven investors are concerned about the risk of possible margin calls on Whitehaven shares held by Whitehaven executives, but rumours regarding such calls have been reportedly denied by Whitehaven's Managing Director, Tony Haggarty, and Chairman, Mark Vaile.
The Director and Managing Executive Officer of Japan-based coal miner Mitsui Matsushima has reportedly stated that the company is seeking greenfield and existing coal mine investment opportunities in Canada, Indonesia and particularly in Australia. Mitsui is reportedly likely to spend less than A$100 million on any equity investment and aim for a 10% to 30% stake, as it does not yet have capacity to participate as an operator. Mitsui Matsushima is reportedly interested in mines with small to mid-scale production between 2 and 10 Mtpa.
It has been reported that several entities including Teck Resources, Glencore International, POSCO, Hindalso Industries and Vedanta Resources may be interested in acquiring ASX-listed Rio Tinto's 59% interest in Iron Ore Co. of Canada (IOC). After finalising its merger with Switzerland-based Xstrata, Glencore is believed to be looking for iron ore holdings to better compete with Rio Tinto and ASX-listed BHP Billiton. Rio Tinto has reportedly hired Credit Suisse and CIBC to sell their majority interest in IOC, which is valued at US$1.7 billion. Mitsubishi and Labrador Iron Ore Royal Income Corporation own the remaining 41% interest in IOC.
In other Xstrata-Glencore news, Xstrata's proposed A$6 billion Wandoan coal project is reportedly unlikely to go ahead following Ivan Glasenberg's, Glencore's CEO, recent statement that the company would prefer brownfield projects over greenfield ones as they are less risky. Reportedly, the mining industry is collectively questioning the profitability of greenfiled projects in light of low commodity prices and over-supply in the market. Mick Davis, outgoing Xstrata Global Chief Executive, has also reportedly noted that, while the proposed Wandoan coal mine remains an important component of Xstrata's growth potential, it is not part of the company's current expansion.
The Australian Financial Review has reported that Pallinghurst Resources could consider privatising ASX-listed iron ore miner Jupiter Mines. Jupiter's Chairman, Brian Gilberton, is reportedly considering moving the company's operations to London and as he is the Chair of Pallinghurst also, could use Pallinghurst to privatise Jupiter. Jupiter's primary projects located in Australia are its Central Yilgarn Iron Projects, located northwest of Kalgoorlie in Western Australia.
Following a report in the Australian Financial Review that Hanlong would be unlikely to provide a credit approved term sheet for the purchase of ASX-listed iron ore miner Sundance Resources by the 26 March 2013 deadline, Sundance was placed in a trading halt on 19 March 2013. Reportedly, Hanlong and its advisers are continuing to work on the approvals, will most likely ask Sundance for an extension of the deadline and may try to reduce its offer price. Hanlong has already reduced its offer from A$0.57 per share to A$0.45 per share, with claims it could be lowered further to A$0.30 per share. Sundance has requested that its securities remain under voluntary suspension while Sundance and Hanlong continue negotiating matters concerning the Scheme Implementation Agreement. On 20 March 2013, Sundance announced that it anticipates the voluntary suspension to be lifted prior to the market opening on Monday 8 April 2013.
It has been reported that the GVK Group is intending to sell a minority equity stake in its A$10 billion Australian coal mining projects, namely the Alpha and Alpha West coal projects, and the Kevin's Corner coal project, all of which are located in Queensland's Galilee Basin. Under such a sale, GVK would reportedly maintain majority ownership and would consider downsizing its current interests in the projects to 51%. Sanjay Reddy, Vice-Chairman of GVK Power and Infrastructure, has reportedly confirmed that a deal to divest a minority holding in GVK's mining business could close within three to four months. Reportedly, GVK has been in active discussions with almost 20 companies from regions including India, Japan, China, Taiwan and Korea. GVK owns a 79% interest in each of the Alpha and Alpha West coal projects, as well as a 100% interest in the Kevin's Corner coal project.
New Bill to protect water resources
The Environment Protection and Biodiversity Conservation Amendment Bill 2013 (Cth) was introduced into the House of Representatives on 13 March 2013. The Bill proposes to amend the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) by implementing greater environmental protection for water resources impacted by coal seam gas (CSG) and large coal mining developments.
For CSG and large coal mining developments that have a significant impact on a water resource, federal assessment and approval will be required under the Bill. For relevant projects that are currently in the early stages of their approval process, additional information relating to water resources can be incorporated at the stage they are currently at (rather than beginning the assessment process again). For relevant projects already undergoing environmental assessment, applicants will be notified as to what additional information is required and when that information must be provided.
Greentape Reductions for Environmental Approvals
Further to our story in the September 2012 edition of the Australian Resources Sector Update, the remaining provisions of the Environmental Protection (Greentape Reduction) and Other Legislation Act 2012 (Qld) commenced on 28 February 2013. Broadly, the Act streamlines the approvals process for environmental authorities.
Aurizon and GVK reach preliminary agreement for development of Galilee Basin
On 11 March 2013, ASX-listed Aurizon Holdings and GVK Coal Infrastructure (Singapore) Pte Ltd announced that they have signed a non-binding term sheet to jointly progress the development of rail and port infrastructure to unlock Galilee Basin coal reserves, including GVK's Alpha, Kevin's Corner and Alpha West coal mines. Under the proposed framework, Aurizon will acquire a 51% interest in Hancock Coal Infrastructure Pty Ltd, which owns GVK's rail and port projects. The companies are proposing to develop 60 Mtpa port and rail project, which they would jointly manage, comprising of a Greenfield rail project, as well as a development right for a coal terminal at Abbot Point.
New areas to be released for mineral exploration in Queensland
Three new areas of greenfield land in north-west Queensland are set to be released by the Queensland Government for mineral exploration on 7 July 2013. The area comprises of 2,364km2 near Bedourie, approximately 400km south of Mt Isa.
The land being released lies within Restricted Areas 351, 353 and 354 which currently precludes any exploration activities. The area is reported to be potentially rich in a range of minerals and rare earth elements, according to recent airborne geophysical and ground gravity data collected as part of the Queensland Government's Smart Exploration program.
Applications for exploration permits over the released land will be open to all entities who are eligible to hold an exploration permit, including foreign companies.
Further information can be found at:
Fortescue challenges Mineral Resources Rent Tax
Further to our story in the June 2012 edition of the Australian Resources Sector Update, ASX-listed iron ore miner Fortescue Metals has continued its challenge of the Mineral Resources Rent Tax (MMRT) in the High Court on the basis that it is unconstitutional. Fortescue argues that the MRRT discriminates between States, gives preference to one State over another, and restricts a State's ability to encourage mining, all of which are contrary to the Constitution. The remainder of the case has now been heard, and the High Court has reserved its decision.
ACCC proposes to allow collective bargaining
The Australian Competition and Consumer Commission (ACCC) has announced a proposal to allow Endocal, Whitehaven Coal, Yancoal Australia, QC Resource Investments and Linc Energy to collectively bargain with Adani Mining for access to its new coal terminal at Dudgeon Point in Queensland, as well as with Aurizon Network for access to below rail infrastructure in order to transport their coal to the coal terminal. Under its draft determination, the ACCC will permit the collective bargaining to last for up to 15 years, stating that it will result in more timely and efficient negotiations to secure terminal and rail capacity.
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.
|Most awarded firm and Australian deal of
Australasian Legal Business Awards
|Employer of Choice for
Equal Opportunity for Women
in the Workplace (EOWA)