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Guangsheng buys into miner

By Wang Ying (China Daily)
Updated: 2009-05-28 08:08

China's Guangdong Guangsheng Non-ferrous Metals Group (Guangsheng) will buy a 19.9 percent stake in Australian miner, Pan Australian Resources Ltd, effectively becoming its largest shareholder in a deal worth $140 million. This is the second time that the Guangdong-based group has succeeded in acquiring a stake in a non-ferrous metal firm from Australia.

According to the deal inked yesterday, Guangsheng will purchase as many as 460 million shares of Pan Australian at $0.31 apiece. The deal is still subject to approvals from the Foreign Investment Review Board of Australia, the Chinese government, and board members of Pan Australian.

If the deal goes smoothly, Guangsheng will have five listed firms under its belt, including three Chinese companies, Shenzhen Zhongjin Lingnan Nonfemet Co, Fenghua Advanced Technology, and Guangdong Fenghua Hi-tech Co Ltd; and two Australian companies, Perilya Limited and Pan Australian.

Pan Australian is based in Brisbane. Its market value currently is around $570 million. Its major mines are located in Southeast Asia, including the Laos, the Philippines and Thailand.

"Pan Australian has invested $241 million in Laos' Phu KhamAmong, which has huge reserves of gold and copper. The mine is expected to yield 65,000 tons of copper, and between 65,000 and 75,000 ounces of gold in 2009," said Peng Bo, an analyst with Guosen Securities.

Peng called this is a win-win deal. "The global economic meltdown has pushed many medium- and small-sized miners to the edge of bankruptcy, and many of them have encountered difficulties in financing and capital flow. With the cash injection of the Chinese mining group, the Australian firm will survive and even expand," he said.

Related readings:  China issues plan to support nonferrous metal industry  Hunan Nonferrous to buy metals as reserves  China to aid nonferrous metals, logistics sectors  Standards on energy consumption of nonferrous metals established

"Although the Chinese miners are facing a similar situation, they have the support of the central government, backed by both capital and favorable policies. In addition, international assets are generally underrated during a global economic slowdown. If we don't grab such opportunities, similar purchases will cost more, both in terms of administrative hurdles and higher valuations," Peng said.

This stake buy was just another item in Chinese miners' purchase list, according to Lan Ke, an analyst with Southwest Securities. "Storage of resources and robust cash flow have pushed Chinese miners to go shopping overseas, such as Minmetals' shares purchase in OZ Minerals, and Aluminum Corporation of China Limited's (Chinalco's) effort in expanding its stakes in Rio Tinto," said Lan.