On 27 March 2014, MetroCoal Limited (an ASX-listed company focused on thermal coal projects in southeast Queensland's Surat Basin) announced that it had substantially increased its shareholding in Cape Alumina Limited from 6.87% to 46.04% through the acquisition of over 95 million shares from Resource Capital Fund (RCF). The shares were purchased at A$0.06 each under the terms of the unconditional on-market cash offer made by MetroCoal to Cape Alumina on 18 March 2014. RCF reportedly identified the Queensland Government's ban on mining on the Steve Irwin Wildlife Reserve and the resulting uncertainty surrounding Cape Alumina's flagship bauxite project at Pisolite Hills as a key factor in its decision to sell its interest to MetroCoal.
On 18 March 2014, ASX-listed Ascot Resources Ltd announced that it has executed a binding agreement to acquire the Wonmunna Iron Ore Project, located in Western Australia's Pilbara region, from Ochre Group Holdings Limited. Following a two-for-one share consolidation, Ascot will issue 88 million fully paid ordinary shares to Ochre as consideration, and pay a maximum of A$2 million in cash to Ochre on completion. A further A$29.75 million is payable five years from completion and a 1% gross revenue royalty in favour of Ochre will commence one year after the first iron ore shipment. Ascot will also assume Ochre's obligation to Talisman Mining Limited to pay a 1% gross revenue royalty from first shipment.
Amongst other things, the transaction is conditional on Ascot raising at least A$10 million in new equity at an issue price of A$0.25 per share. Ascot has received subscription commitments (conditional on completion occurring by 30 June 2014) from sophisticated investors for a total of A$9.7 million at the prescribed issue price. Ascot's largest shareholder, Resource Capital Fund V L.P. has also indicated that it will make a further A$5 million investment by subscribing for new shares at A$0.25 subject to completion and its own due diligence of the Project. As part of the deal, Ochre has nominated Executive Chairman, Nathan Featherby, and Non-executive Director, McAndrew Rudisill, to the Ascot Board.
Further to our reporting in the January, February and March 2014 editions of the Australian Mining Sector Update, Roy Hill Holdings recently announced that it has signed the senior finance documentation for US$7.2 billion to complete the funding package for the US$10 billion Roy Hill iron ore mining project located in Western Australia's Pilbara region. The long term debt package is comprised of loans and guarantees from five Export Credit Agencies and a consortium of 19 commercial banks from Australia, Japan, Europe, China, Korea and Singapore. Roy Hill CEO Barry Fitzgerald was advised that this is the largest ever project financing for the development of a land-based mining project worldwide.
On 26 March 2014, Yancoal Australia Ltd, an ASX-listed company with thermal and metallurgical coal mines in New South Wales and Queensland, announced that it had successfully arranged a US$300 million long term loan facility from its largest shareholder, Yanzhou Coal Mining Company Limited. The first US$100 million tranche has a term of six years (with principal to be repaid in full at maturity) and is provided on an unsecured basis with no covenants. The interest and repayment timing for the next tranches will be agreed at a future time. The purpose of the US$300 million loan facility is to fund working capital and capital expenditure. The loan comes in the wake of Yanzhou's recent decision not to proceed with its indicative non-binding proposal to privatise Yancoal, as first announced in July last year. A recent Hong Kong media report said that Yanzhou, which currently holds a 78% interest in Yancoal, may reconsider the offer to take 100% control of Yancoal when conditions are more favourable.
Market rumours and opportunities
On 25 March 2014, ASX-listed coal miner New Hope Corporation Limited announced that it has A$1.1 billion cash and cash equivalents at hand providing it with the "capacity to pursue any attractive acquisition opportunities in coal, oil and gas that may be presented by the current economic climate". New Hope's primary operations occur at its open-cut New Acland and Jeebropilly mines, and the company also has a suite of other mining, exploration, development and infrastructure projects in Queensland. New CEO Shane Stephan reportedly said that, despite the slump in profits from the previous year, New Hope's first half net profit of A$22.7 million was a good result given the challenging market conditions. Stephan also dismissed depressed coal prices as cyclical and certain to rise.
The Australian Financial Review reported that there would be no quick improvement in New Hope earnings, but that the miner's A$1.1 billion cash reserves give it "plenty of firepower to withstand the downturn" and the ability to "make selective acquisitions if opportunities emerged." Confirming that New Hope will probably try to take advantage of the coal price slump by focusing on acquisitions rather than developing the projects already on its books, The West Australian reported that Stephan expects continuing low coal prices will inevitably mean there are "better priced opportunities available".
Carpentaria Exploration's CFO, Chris Powell, has reportedly said that the company would like to find a joint venture partner to contribute A$25 million to bring the bankable feasibility study of its Hawsons Iron Project to completion as soon as possible. On 26 March 2014, Carpentaria announced a maiden Indicated Resource of 215 Mt for the magnetite asset which is located near Broken Hill in New South Wales. This brings the total Resource tonnage of the Project to 1.77 Bt at a mass recovery of 14.9%. Powell reportedly told Mergermarket that the company has looked at a number of options to advance the Project.
On 19 March 2014, ASX-listed iron ore miner Gindalbie Metals Limited advised that its joint venture partner and China's second largest steel maker, Ansteel, exercised its right to convert two shareholder loans worth US$60 million to new shares in Karara Mining Limited (KML), raising Ansteel's ownership interest in the Karara magnetite operation from 50% to 52.16%. Ansteel reportedly has the right to subscribe for additional equity in KML to repay A$230 million in further bank debt and pre-sales agreements. If it exercises the debt-to-equity conversions, Ansteel's stake in KML would increase to 62%. A recent Mergermarket report suggests that Ansteel is considering a buy out of Gindalbie's entire interest in KML. Although Gindalbie's recently released half year report showed it owes Ansteel almost A$430 million as at 31 December 2013, the Mergermarket source said Ansteel is not contemplating a full corporate takeover of Gindalbie.
According to Jim Beyer, CEO of Perth-based miner Mount Gibson Iron, the company could form a joint venture with Chinese State-owned Shougang Group if it finds an acquisition target too large to proceed alone, though a source at Shougang would not confirm whether it would pursue such an arrangement. Beyer reportedly said Mount Gibson was primarily seeking targets nearby to its existing Tallering Peak and Extension Hill operations in Western Australia to maximise infrastructure synergies. Mount Gibson is also said to be assessing targets in the rest of Western Australia as well as Victoria, Queensland, South Australia and the Northern Territory, and may even assess other commodities like coking coal at a later date to diversify the risk profile of its asset base. For the moment, Mount Gibson's focus remains on iron ore, and with minimal debt, a strong operating cash flow, a reported market capitalisation of A$911 million, and a "war chest of A$484 million", Beyer implied that the company could pursue "huge" deals, though did not disclose a particular value.
Mergermarket has reported that ASX-listed iron ore company, Atlas Iron, may seek to form a consortium comprising Process Minerals International and Consolidated Minerals (who, along with Atlas, are the primary users) to buy Utah Point if the Western Australian Government seeks to privatise this bulk export facility. Unnamed bankers in the sector have predicted that Atlas will look at defensively acquiring a majority stake in Utah Point to mitigate the risk that a new owner will raise prices to the detriment of Atlas' major export assets in the Pilbara. The Utah Point bulk export facility is likely to be the first Western Australian asset to be privatised by the State Government, with an estimated value of up to A$500 million and with the potential to attract interest from pension funds and commodity traders.
The Daily Mail reported that Rio Tinto is working on a US$8 per share cash offer for the remaining 49.2% stake in Turquoise Hill Resources (Rio holds an existing 50.8% interest in the listed Canadian miner). The report suggests that the transaction could be agreed within weeks.
The Business Standard has reported that Adani may divest 50% of its stake in the Carmichael thermal coal project. Adani was reportedly in negotiations with China Rail Corporation and another Chinese company but no deal has been finalised.
Murilo Ferreira, CEO of Vale, the world's largest iron ore miner, is reportedly considering selling its less profitable assets in 2014 to reduce costs. Assets potentially up for sale reportedly include Vale's coal mining projects in Australia.
REGIONAL PLANNING INTERESTS ACT 2014 (QLD)
The Queensland Government passed the Regional Planning Interests Act 2014 on 20 March 2014. The new Act seeks to resolve potential conflicts which may arise from the interaction of competing land users like farmers and mining companies. The Act aims to strike a balance between protecting priority land and delivering economic prosperity to the region. Under the Act, a resource or other regulated activity can only occur in areas of "regional interest" (being Priority Agricultural Areas, Priority Living Areas, Strategic Environmental Areas or Strategic Cropping Areas) if the proponents reach agreement with the landholder, or if a Regional Interest Development Approval is granted. Deputy Premier and State Development, Infrastructure and Planning Minister, Jeff Seeney, said that the assessment process under this Act will not stop resource developments, but "restores the balance of power between rural producers and resource companies when new mining or gas developments are proposed, and offers greater incentives for resource companies to reach mutually beneficial agreements with landholders." He said this legislation provides "an opportunity for farmers and resource companies to be responsible for determining how these two critical industries might coexist at a property and regional level."
A copy of the Act can be found here. A link to the Corrs Thinking Piece discussing what the Act means for resources projects can be found here.
WA RESOURCES WORTH RECORD VALUE IN 2013 BUT MUST FOCUS ON RESEARCH
The value of Western Australia's minerals and petroleum sector reached a record A$113.8 billion in 2013, despite a significant drop in exploration expenditure in the State. Western Australia's Minister for Mines and Petroleum, Bill Marmion, said it was a good outcome, particularly given soft commodity prices and the strength of the Australian dollar in the first half of 2013. Iron ore continues to be the State's most valuable export, contributing A$68 billion, or 76% of the mineral sector's total sales. Marmion reportedly said that "strong demand from China meant the iron ore sector achieved a record 556 million tonnes in exports [in 2013], an increase of 16% over the previous calendar year."
Perhaps in response to the concerning 17.1% or A$38 million reduction in spending on iron ore exploration in 2013, the Minerals Research Institute of Western Australia, which began operation in February this year, has plans to fund A$2.6 million over three years to "unravel the technical challenges of exploring in the complex geology of the State." The Institute has State backing, with the Government providing an additional A$7.5 million in funding to support the new group's research. Marmion reportedly explained that "the Government needs to facilitate investment in minerals research to ensure the State's mining operations are competitive with operations in lower-cost jurisdictions," saying that "Western Australia was recently ranked number one in the world for investment attractiveness by the Fraser Institute, but we must continue to work on ensuring we remain number one."
RIO'S EXPANSIONS APPROVED
In more good news for Western Australia's iron ore industry, the State Government has approved A$880 million worth of expansions by Rio Tinto, including plans to increase production at its West Angelas mine in the Pilbara by 20%. The West Angelas expansion is expected to boost production from 29 Mtpa to 35 Mtpa, create 290 jobs during construction, and increase the ongoing operations workforce by 200, to a total of 1300. It is anticipated that this development will extend the mine's life by around 13 years. Rio's expansion plans also include an expected A$200 million investment at its Western Turner Syncline mine, also in the Pilbara. This expenditure is aimed at raising production from 25 Mtpa to 30 Mtpa, creating around 240 construction jobs and an expected 30 permanent positions.
RESOURCESQ PARTNERSHIP GROUP ANNOUNCED
Six resource industry experts have been selected to work with the Queensland Government to help drive growth and jobs in the sector over the next three decades as part of the ResourcesQ initiative which is designed to provide strategic advice and recommendations to the resources sector. Minister for Natural Resources and Mines, Andrew Cripps, said the group "will play a key role in ensuring broad industry consultation guides our strategic direction and ... addresses industry challenges." The ResourcesQ forum will be chaired by Steve de Kruijff, former COO of Xstrata's North Queensland Copper Division and former Queensland Resources Council President. The other group members are Dr Laurie Hammond, Chair of CRC Mining, Theo Psaros, leading transport infrastructure consultant and former COO of MetroCoal, Brendan Ostwald, CEO of mining services company Ostwald Bros Pty Ltd, Gavin Becker, former CEO of Metallica Minerals, and Dr Julie Beeby, Queensland Resource Industry Ambassador and former CEO of WestSide Corporation Limited.
COAL PRODUCERS GRANTED INTERIM AUTHORISATION FOR COLLECTIVE NEGOTIATIONS
Further to our report in the March 2014 edition of the Australian Mining Sector Update, the ACCC has issued a draft decision proposing to grant authorisation to a group of Queensland coal producers, known as the RG Tanna Coal Export Terminal Producers, to collectively negotiate with Gladstone Ports Corporation (GPC) in relation to the terms and conditions of new coal handling and port services agreements at Gladstone Port in Queensland. Authorisation would provide the RG Tanna Coal Export Terminal Producers with statutory protection from court action for conduct that might otherwise raise concerns under the competition provisions in the Competition and Consumer Act 2010 (Cth). The ACCC is entitled to grant authorisation if it is satisfied that the public benefit from the conduct outweighs any public detriment. The companies involved are Anglo American, BHP Billiton Mitsubishi Alliance, Cockatoo Coal, Glencore Coal Investments, Idemitsu Australia Resources, Jellinbah Resources, Rio Tinto, Sojitz, Wesfarmers Resources and Yancoal Australia.
Interim authorisation was granted on 6 February 2014 and allows the applicants to immediately commence collective negotiations in respect of terminal and channel infrastructure while the ACCC assesses the application, provided the applicants do not give effect to any such agreement unless and until final authorisation is granted. The ACCC is seeking submissions from interested parties in relation to its draft determination before making a final decision. Further information on the draft determination is available here.
QUEENSLAND GOVERNMENT PUTS AURUKUN ON ICE
The Queensland Government has suspended the 650 Mt Aurukun bauxite project after deciding that development proposals submitted in September last year by Australian Indigenous Resources and Glencore International provided insufficient benefit to local groups in the western Cape York region, and the timeframes for delivery of those benefits were too long. Deputy Premier and State Development, Infrastructure and Planning Minister, Jeff Seeney, said that the Government was determined to avoid the mistakes of the past, where companies were granted rights, but were later unable to uphold their obligations to the community. Seeney said the Government remains interested in developing the Aurukun resource for the benefit of the local community and all Queenslanders, and will revisit the Aurukun development at a later date. "Our door remains open to proposals which would develop these resources in a timely fashion," he said, confirming that the State remains receptive to "other resource development in the Cape that [has] the potential to deliver economic benefits."
AUSTRALIA-KOREA FTA REFERRED TO SENATE INQUIRY
Further to our story in the March 2014 edition of the Australian Mining Sector Update, the Senate recently voted to refer the free trade agreement between Australia and South Korea (KAFTA) to the Foreign Affairs, Defence and Trade References Committee for closer inspection. The free trade agreement reached between Australia and Korea in December 2013 would see tariffs reduced on a range of Australian agricultural export commodities and would provide an estimated boost to Australia's economy of around A$653 million by 2030.
According to ABC Rural, Labor's trade spokeswoman, Senator Penny Wong, said that referring KAFTA to a Senate inquiry is necessary because "people have raised some concerns about whether the market access for a number of agricultural industries is as good as it could be", but that Labor understands "how important [KAFTA] is ... particularly for our beef producers." The full text of the KAFTA is available here.
AUSTRALIA-MONGOLIA MINING INDUSTRY CO-OPERATION
On 18 March 2014, Minister for Foreign Affairs, Julie Bishop, along with her Mongolian counterpart, Luvsanvandan Bold, announced a five year, A$20 million program to support sustainable development of the resources sector in Mongolia. The Australia-Mongolia Extractives Program will utilise Australian expertise in Mongolia to help ensure benefits of the mining industry are spread across Mongolia's entire population by improving industry governance, opening the Mongolian economy to international investment and development opportunities, and helping disadvantaged Mongolian communities to gain access to technical and vocational training. This initiative is additional to the Federal Government's existing A$5 million partnership with the World Bank which aims to strengthen management of groundwater resources in Mongolia's southern Gobi region.
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