Foreign Investment in Australian Mining

Resources and mining companies dominating the headlines this past week include BHP Billiton's expansion of its Olympic Dam copper and uranium mine after securing environmental approval, Rio Tinto reports record sales of iron ore and hard coking coal production, Extract Resources talks with Australia's securities regulator regarding a potential bid for its largest shareholder, and the proposed takeover of Sundance Resources hits a hurdle.

This week we take a closer look at foreign investment in Australian mining. American analyst James Dines says Australia should not be selling its commodity producing assets to overseas buyers. And there have been protests in Gunnedah against the expansion of mining. Chinese-owned Shenhua Group has reportedly spent $213 million acquiring 43 farms in the town.
We also speak exclusively with New Hope chief executive Robert Neale about the slowing global economy and how the coal producer has positioned itself to weather the financial storm.

BHP's Olympic Dam gets environmental go-ahead
BHP Billiton Limited's (ASX:BHP), (NYSE:BHP) $US20 billion expansion of its Olympic Dam copper and uranium mine in South Australia has won environmental approval from the state and federal governments. The mining giant followed the announcement with a $US1.2 billion injection of pre-commitment capital for the first phase of the project. BHP says the project has the potential to increase copper output from 180,000 to 750,000 tonnes per annum. Olympic Dam is expected to become the world's largest open pit mine, one kilometre deep and extending over more than 4 kilometres in length. Final approval from the board of BHP Billiton is expected in the first half of 2012.

New Hope refuses to "delay and pray"
New Hope Corporation Limited (ASX:NHC) recently announced it's received a number of preliminary takeover proposals. Currently the Board is evaluating the proposals, a process expected to take several months.

The Finance News Network asked New Hope chief executive Robert Neale how worried he was about the slowing global economy, especially a hard landing for China, and the possible impact on operations.

"We would certainly not fall into the 'delay and pray' syndrome because today's incidences are so bad you can't do anything. That's generally fatal for resource companies. You've got to take a longer term view. We have the flexibility, that if things do go really difficult ... we just cut our cloth to suit the global conditions. I'm very confident that no matter what the situations are, and clearly some of them could be quite difficult, we have the management team and the workforce to get through it."

Mr Neale said New Hope had performed well during the global financial crisis of 2008 and the Queensland coal producer was well positioned to weather the next financial storm should it eventuate.

"If I make the comparison with GFC One, where companies put off people, we actually put on people. Other companies lost volumes and sales, we actually acquired volumes and sales. People delayed or shut down expansion projects, we actually kept going flat out."

"All we have to do is ensure that we remain competitive in the international coal market ... Asia really has no choice but to go to coal for the next ten to twenty years, its growth in other areas may be greater, but they'll certainly need to consume an increasing level of coal," added Mr Neale.

Rio's record sales
Rio Tinto Limited (ASX:RIO), (NYSE:RIO) has reported record sales of iron ore and hard coking coal production in the September quarter. Rio sold 60 million tonnes of iron ore from its Pilbara operations, with the ports and rail recovering strongly from bad weather conditions earlier in the year. The miner produced 50 million tonnes of iron ore during the quarter, an increase of 5 per cent on the corresponding period last year.

Extract shareholder in talks with Chinese suitor
Uranium miner Extract Resources Limited (ASX:EXT) has held talks with Australia's securities regulator regarding a potential bid for its largest shareholder, Kalahari Minerals, by China's Guangdong Nuclear Power. Earlier Kalahari Minerals confirmed speculation of a potential takeover, propelling Extract to hold talks with the Australian Securities and Investments Commission. Extract says it has made a submission to ASIC for an indirect takeover of the company. Australian law stipulates that companies must launch a full takeover bid if their proposed investment in the local company exceeds 19.9 per cent, unless the acquisition falls within certain exceptions.

Sundance takeover hits hurdle
The proposed $1.65 billion takeover of Africa-focused iron ore developer Sundance Resources Limited (ASX:SDL) from its largest shareholder, China's Hanlong Mining, hit a hurdle last week. Sundance confirmed that its suitor was is in talks with Australia's Foreign Investment Review Board, after media reports speculated that the FIRB would not clear the bid until more findings were released from the investigation of suspected insider trading from Hanlong executives. Hanlong also stressed that the Australian Securities and Investments Commission focus on the individuals, not the company itself.

Leading analyst: Say 'no' to foreign ownership
Finance News Network spoke with leading American investment analyst James Dines at the RIU Melbourne Resources Round-up conference about his views on foreign ownership in Australia.  

Mr Dines says, "When you sell a mine, you're selling an irretrievable asset that will never grow again. It's something you inherited, these are your heirlooms. And, instead of just trading that for paper that can be printed irresponsibly, I think you need to sit back and say, what are we doing here?"

Mr Dines passionately believes Australia should not be selling its commodity producing assets to overseas buyers.

"This is a mad scramble for the world's remaining assets. Will it damage Australia? Yeah irretrievably so, I think that if somebody wants to buy Australian real estate, you should ask them to trade instead of selling it - ask for their real estate."

Mr Dines warns that Australia is heading down the same path as America, selling off its assets. He says Australians need to question what is happening and put a stop to it.

"[In America] we've sold all our assets freely and we're tapped out - our huge oil reserves are gone. Long ago I said America should print paper and buy other people's oil, what are we doing? Instead we gave tax advantages to drilling in America. I think you need to take a hard look at the whole topic of your assets and who gets them, how they are sold and what will Australia do seven centuries from now."

Gunnedah holds protests against miners
More than 500 protestors gathered in the New South Wales town of Gunnedah last week to voice their concerns over the expansion of mining in the region. A public meeting, hosted by talkback radio broadcaster Alan Jones, slammed the state government and gas companies for allowing 'legalised theft' of the region's farms. The pitch to preserve prime agricultural land was heightened by concerns over food security, the environment and health of local residents.

According to local media reports Mr Jones said, "I'm opposed to the arrogance of these people ... where they think they can go anywhere, do what they want and get away with it". Mr Jones named Eastern Star Gas Limited (ASX:ESG) and Santos Limited (ASX:STO) as players in the industry, as well as the world's largest coal producing company, Chinese-owned Shenhua Group. Shenhua Group has reportedly spent $213 million acquiring 43 farms in Gunnedah. Under Foreign Investment Review Board regulations, Australia's ownership regulator will only step in if the company's purchase of agricultural assets exceeds the $231 million threshold.

Melissa Beaumont Lee
Photo courtesy of Peter Lorimer