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Key points
- An important breakthrough was achieved when the Foreign Investment Review Board (FIRB) approved Sichuan Hanlong Group’s (Hanlong) US$700 million strategic investment in Moly Mines Limited (Moly Mines) through its Australian subsidiary, Hanlong Mining Investments Pty Ltd.
- FIRB’s approval, which has no conditions attached, allows privately held Hanlong to acquire over 51 per cent of shares in publicly listed Moly Mines.
- The decision provides welcomed guidance at a time of heightened confusion and political sensitivity over Australia’s foreign investment regulations. In particular, it highlights the differences in treatment between private and state-owned investors—suggesting that investments by private enterprises in the resources sector can achieve higher levels of ownership.
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Details of the deal
On 18 November 2009, Moly Mines announced that it had received FIRB approval for the investment from Hanlong to go ahead.
Hanlong will acquire 207.1 million Moly Mines shares (over 51 per cent of total shareholding) for US$140 million at a price of 74.7 cents per share. Hanlong will also provide Moly Mines with an interest bearing US$60 million 10-year loan.
Hanlong will commit to provide a further US$500 million debt funding by 30 June 2010. This financing will be used for the development of Australia’s first major molybdenum mine, the Spinifex Ridge Molybdenum/Copper Project. It is predicated that the project may commence as early as mid-2010 with a production rate of 10 million tonnes per annum.
Hanlong will also receive an option to purchase additional shares in the future.
The investment is still conditional on approvals by Chinese regulatory agencies. In addition, Moly Mines’ shareholders must also approve the proposal at a shareholders meeting to be held on 16 December 2009.
Impact of FIRB’s decision
While FIRB had recently approved a number of significant Chinese investments, the Moly Mines investment is its first opportunity to decide on a large scale investment by a private Chinese enterprise looking to acquire a majority stake in a listed Australian company.
Hanlong is a privately-held conglomerate with no ties to the Chinese Government. It has a wide portfolio of investments, which include mining and minerals, energy, infrastructure, pharmaceuticals, food and beverages, real estate, tourism and technology sectors.
FIRB approval for the Moly Mines investment is significant for two reasons:
1. Additional guidance on policy
Hanlong’s acquisition of over 51 per cent of shares in Moly Mines follows a recent comment from FIRB director, Patrick Colmer, that the government prefers investments in major Australian resource companies to be less than 15 per cent, and for investments in greenfields projects to be below 50 per cent.
This stance was recently reflected in FIRB’s conditional approval for China Nonferrous Metal Mining Co’s proposed A$500 million investment in Lynas Corporation. One of the conditions attached to the approval required that China Nonferrous undertake to purchase less than 50 per cent of shares in Lynas.
FIRB did not state whether these foreign ownership thresholds apply to both private and state-owned enterprises. It also did not define what it considers to be an established or greenfields project. Nonetheless, FIRB’s decision to allow Hanlong to acquire a majority stake in Moly Mines could suggest that the thresholds are examined on a case-by-case basis and may be less-onerous for private enterprises.
2. Approval with no conditions or undertakings
Imposing undertakings on Chinese state-owned investors has now become the rule, rather than the exception.
Most recently, FIRB gave conditional approval for Yanzhou Coal Mining Company Limited’s A$3.5 billion takeover bid for Felix Resources Limited. This approval was subject to strict legally enforceable undertakings on Yanzhou aimed at addressing national interest concerns. The undertakings were similar to those attached to FIRB’s approvals for Minmetals’ bid for Oz Minerals and Hunan Valin’s investment in Fortescue (which we covered in our April article).1
However, no such conditions were attached to FIRB’s approval for Hanlong’s investment in Moly Mines. This suggests that private enterprises may not attract the same strict undertakings (including, ownership, board representation, listing requirements, sales agreements, etc.) as their state-owned counterparts.
How this affects foreign investors
As discussed in our September article2, the Australian Government’s foreign investment policy and its application to sovereign and non-sovereign investors in the resources sector continues to develop rapidly with a number of amendments to the regulations over the last year and the imposition of binding undertakings on state-owned enterprises.
FIRB’s decision to approve Hanlong’s investment in Moly Mines comes at an important time where greater clarity is needed over Australia’s foreign investment policy. Its approval provides additional guidance on the government’s comfort levels when it comes to foreign ownership, and suggests that private enterprises may achieve higher ownership levels and control of listed Australian companies, with fewer conditions and limitations on their investments.
However, in the absence of clear-stated policy, the government has left itself room to provide formal guidance in the future. Investors must remember that FIRB will assess each deal on a case-by-case basis.
This article was written by Leon Pasternak, Partner and Anthony Wan, Solicitor, Sydney.
Endnotes
- Freehills article, ‘FIRB’s use of conditional approvals in proposals involving Chinese state owned entities’
- Freehills article, ‘Recent FIRB developments’
More information
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