Minmetals opts to list assets in Hong Kong

CHINA'S state-owned Minmetals has bypassed the Australian market and gone to Hong Kong to list the mining assets it acquired last year from OZ Minerals.

By InvestSMART · 20 Oct 2010

By InvestSMART ·
20 Oct 2010

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CHINA'S state-owned Minmetals has bypassed the Australian market and gone to Hong Kong to list the mining assets it acquired last year from OZ Minerals.

The listing is by way of a $US1.84 billion ($A1.86 billion) acquisition by Minmetals' 63 per cent-owned and Hong Kong-listed Minmetals Resources (MMR) of Minmetals' wholly owned and Melbourne-based Minerals and Metals Group (MMG).

The acquisition is by way of cash, shares and convertible notes, and means Minmetals has done very nicely on the $US1.38 billion it paid OZ last year for the mining assets now housed in the unlisted MMG. At the time, OZ was desperately seeking to refinance its debts because of a panic in its banking syndicate caused by the earlier financial crisis.

The OZ deal with MMG can now be viewed as cheap in the extreme. But it nevertheless allowed OZ to pay off its banks, retain ownership of the Prominent Hill copper/gold mine in South Australia and emerge with a cash balance that now stands at more than $1.4 billion.

Minmetals had indicated it could float off a 25 per cent interest in MMG on the Australian Securities Exchange in keeping with a Beijing directive to state-owned enterprises to sell down 100 per cent equity positions to investors in host countries to improve transparency and to gain access to Western equity markets.

But initially at least, the assets are headed to Hong Kong, where premiums for mining assets can be much higher than on the local market. Reflecting the bigger size of MMG, Melbourne will be the corporate head office for the enlarged MMR.

MMG's managing director, and former managing director of OZ, Andrew Michelmore, will become managing director of the enlarged MMR.

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Frequently Asked Questions about this Article…

Why did China’s state-owned Minmetals list its mining assets in Hong Kong instead of Australia?

Minmetals routed the assets to Hong Kong by using its 63%-owned, Hong Kong‑listed Minmetals Resources (MMR) to acquire the Melbourne‑based MMG. The article says the assets initially headed to Hong Kong where premiums for mining assets can be higher than on the local Australian market, even though Minmetals had previously indicated a possible partial float in Australia.

What was the structure of the Minmetals Resources (MMR) acquisition of MMG?

The takeover was carried out as a US$1.84 billion transaction by MMR for Minmetals’ wholly owned MMG. According to the article, the acquisition was funded by a mix of cash, shares and convertible notes.

How does this deal relate to OZ Minerals and its earlier sale?

Minmetals paid OZ Minerals US$1.38 billion last year for the mining assets that are now in unlisted MMG. That original deal helped OZ refinance its debts during a banking syndicate panic at the time; OZ kept the Prominent Hill copper/gold mine and emerged with a cash balance reported to be more than $1.4 billion.

Will MMG be floated on the Australian Securities Exchange (ASX)?

Minmetals had indicated it could float a 25% interest in MMG on the ASX to follow a Beijing directive encouraging state‑owned enterprises to sell down equity to host‑country investors. However, the article makes clear that initially the assets are being listed via Hong Kong through MMR rather than an immediate ASX float.

What is Minmetals Resources (MMR) and how does it relate to MMG?

MMR is the Hong Kong‑listed vehicle that is 63% owned by Minmetals and has acquired the Melbourne‑based MMG. The article notes the enlarged MMR will have its corporate head office in Melbourne, reflecting the bigger size of MMG within the combined group.

Who is Andrew Michelmore and what change in leadership was announced?

Andrew Michelmore, who is currently MMG’s managing director and a former managing director of OZ, will become the managing director of the enlarged Minmetals Resources according to the article.

What does listing mining assets in Hong Kong mean for everyday investors?

As reported, Hong Kong listings can attract higher premiums for mining assets than the local Australian market. For investors, that means where an asset is listed can affect valuation, investor access and potential demand—facts to keep in mind when following mining stock moves and corporate restructures.

The article says the deal used cash, shares and convertible notes — what does that mean for investors?

The article states the acquisition was financed by a combination of cash, shares and convertible notes. In plain terms, that means part of the purchase was paid in cash, part by issuing equity (shares) and part by instruments (convertible notes) that are typically debt-like now but can convert into equity later. Each element can have different implications for ownership and future dilution in the enlarged group.