31 January 2012

Australia strikes gold with Chinese investors in January

As China’s need for natural resources continues to influence its relations with the rest of the world, the amount of deals targeting Australian mining businesses carried out by investors based in the Peoples’ Republic, Hong Kong, Macau, Taiwan, the Cayman Islands and Bermuda could be set for a bumper year if January is anything to go by.

According to data from Zephyr, seven such transactions worth a total USD 1,203 million were announced in the last month, representing the highest number since June 2010 and the greatest total investment since April 2011. Volume rose 75 per cent from four in January 2011, while value leapt almost 20 times from the USD 61 million recorded in the year-ago period.

In January alone, buyers from China – and those other countries where Chinese companies are most often incorporated – have already committed to spend the equivalent of one third of the amount they spent on Australian mining companies across the whole of 2011. The USD 3,320 million paid out last year was itself more than double the USD 1,392 recorded in 2010.

The most recent batch of these cross-border natural resources transactions has been boosted by the USD 1,100 million acquisition of a 10 per cent stake in Australia Pacific LNG by oil and gas behemoth China Petrochemical Corporation (Sinopec). The deal was part of a wider supply agreement enabling Sinopec to access a further 3 million tonnes of liquefied natural gas each year until 2035. Chairman Fu Chengyu said the deal “will help us to secure long-term gas supply for the growing demand in the Chinese market”.

The Sinopec investment is the largest since April of last year, when the same group bought an initial 15 per cent in Australia Pacific LNG for USD 1,765 million.

Meanwhile, other January 2012 targets included a trio of gold miners (CitiGold, Accent Resources and Hill End Gold), as well as iron ore explorer Ironclad Mining and two coal specialists.

Even if the first month of 2012 does herald further growth for Chinese investment in Australia’s natural resources sector, there is still a long way to go to reach the level of dealmaking activity witnessed at its 2009 peak. In those twelve months 58 deals carrying a combined price tag of USD 17,767 million were announced, a figure that positively dwarfed previous years (2008: USD 1,161 million; 2007: USD 816 million; 2006: USD 552 million) and those which have followed.

A number of multi-billion dollar transactions were announced in 2009, the largest of which was China Metallurgical Group Corporation’s USD 6,931 million acquisition of a 10 per cent stake in a power coal project owned by Resourcehouse, a company with offices in Hong Kong, Brisbane and Perth. Then, despite a higher number of deals overall (61 compared to 58), 2010 ended up reverting to pre-boom levels.

In comparison with the first months of both 2011 and 2010, the current year has got off to an auspicious start for this type of Chinese investment, with one deal worth over USD 1,000 million already in the bag. However, we will have to wait a little longer to find out whether or not 2012 will yield another crop of mammoth transactions targeting the Australian mining industry.

© Zephus Ltd