MINING
SECTOR UPDATE
WWW.CORRS.COM.AU
CORRS
AUSTRALIAN
APRIL 2014
Insights and trends for
the leading edge of
the mining industry
10786710
Introduction
Recent announcements
Welcome to the April 2014 edition of the Australian
Mining Sector Update, a monthly publication
prepared by Corrs Chambers Westgarth for clients
and contacts who are interested
in the Australian mining industry.
This publication brings together a brief summary
of information on recently completed deals, market
rumours, potential opportunities and relevant
regulatory updates.
Holdings Limited. Following a two-for-one share
consolidation, Ascot will issue 88 million fully paid
ordinary shares to Ochre as consideration, and pay a
maximum of A$2 million in cash to Ochre on completion.
A further A$29.75 million is payable five years from
completion and a 1% gross revenue royalty in favour of
Ochre will commence one year after the first iron ore
shipment. Ascot will also assume Ochre’s obligation
to Talisman Mining Limited to pay a 1% gross revenue
royalty from first shipment.
Amongst other things, the transaction is conditional
on Ascot raising at least A$10 million in new equity at
an issue price of A$0.25 per share. Ascot has received
subscription commitments (conditional on completion
occurring by 30 June 2014) from sophisticated investors
for a total of A$9.7 million at the prescribed issue price.
Ascot’s largest shareholder, Resource Capital Fund V L.P.
has also indicated that it will make a further A$5 million
investment by subscribing for new shares at A$0.25 subject
to completion and its own due diligence of the Project.
As part of the deal, Ochre has nominated Executive
Chairman, Nathan Featherby, and Non-executive
Director, McAndrew Rudisill, to the Ascot Board.
Further to our reporting in the January, February and
March 2014 editions of the Australian Mining Sector
Update, Roy Hill Holdings recently announced that it
has signed the senior finance documentation for US$7.2
billion to complete the funding package for the US$10
billion Roy Hill iron ore mining project located in Western
Australia’s Pilbara region. The long term debt package
is comprised of loans and guarantees from five Export
Credit Agencies and a consortium of 19 commercial
banks from Australia, Japan, Europe, China, Korea and
Singapore. Roy Hill CEO Barry Fitzgerald was advised
that this is the largest ever project financing for the
development of a land-based mining project worldwide.
On 27 March 2014, MetroCoal Limited (an ASX-listed
company focused on thermal coal projects in southeast Queensland’s Surat Basin) announced that it had
substantially increased its shareholding in Cape Alumina
Limited from 6.87% to 46.04% through the acquisition
of over 95 million shares from Resource Capital Fund
(RCF). The shares were purchased at A$0.06 each under
the terms of the unconditional on-market cash offer
made by MetroCoal to Cape Alumina on 18 March 2014.
RCF reportedly identified the Queensland Government’s
ban on mining on the Steve Irwin Wildlife Reserve and
the resulting uncertainty surrounding Cape Alumina’s
flagship bauxite project at Pisolite Hills as a key factor
in its decision to sell its interest to MetroCoal.
On 18 March 2014, ASX-listed Ascot Resources Ltd
announced that it has executed a binding agreement
to acquire the Wonmunna Iron Ore Project, located in
Western Australia’s Pilbara region, from Ochre Group PAGE 2
APRIL 2014
Market rumours and opportunities
On 26 March 2014, Yancoal Australia Ltd, an ASX-listed
company with thermal and metallurgical coal mines in
New South Wales and Queensland, announced that it had
successfully arranged a US$300 million long term loan
facility from its largest shareholder, Yanzhou Coal Mining
Company Limited. The first US$100 million tranche has
a term of six years (with principal to be repaid in full at
maturity) and is provided on an unsecured basis with no
covenants. The interest and repayment timing for the next
tranches will be agreed at a future time. The purpose of
the US$300 million loan facility is to fund working capital
and capital expenditure. The loan comes in the wake of
Yanzhou’s recent decision not to proceed with its indicative
non-binding proposal to privatise Yancoal, as first
announced in July last year. A recent Hong Kong media
report said that Yanzhou, which currently holds a 78%
interest in Yancoal, may reconsider the offer to take 100%
control of Yancoal when conditions are more favourable.
On 25 March 2014, ASX-listed coal miner New Hope
Corporation Limited announced that it has A$1.1
billion cash and cash equivalents at hand providing it
with the “capacity to pursue any attractive acquisition
opportunities in coal, oil and gas that may be presented
by the current economic climate”. New Hope’s primary
operations occur at its open-cut New Acland and
Jeebropilly mines, and the company also has a suite of
other mining, exploration, development and infrastructure
projects in Queensland. New CEO Shane Stephan
reportedly said that, despite the slump in profits from
the previous year, New Hope’s first half net profit of
A$22.7 million was a good result given the challenging
market conditions. Stephan also dismissed depressed
coal prices as cyclical and certain to rise.
The Australian Financial Review reported that there
would be no quick improvement in New Hope earnings,
but that the miner’s A$1.1 billion cash reserves give it
“plenty of firepower to withstand the downturn” and the
ability to “make selective acquisitions if opportunities
emerged.” Confirming that New Hope will probably try
to take advantage of the coal price slump by focusing on
acquisitions rather than developing the projects already
on its books, The West Australian reported that Stephan
expects continuing low coal prices will inevitably mean
there are “better priced opportunities available”.
Carpentaria Exploration’s CFO, Chris Powell, has
reportedly said that the company would like to find a
joint venture partner to contribute A$25 million to bring
the bankable feasibility study of its Hawsons Iron Project
to completion as soon as possible. On 26 March 2014,
Carpentaria announced a maiden Indicated Resource
of 215 Mt for the magnetite asset which is located near
Broken Hill in New South Wales. This brings the total
Resource tonnage of the Project to 1.77 Bt at a mass
recovery of 14.9%. Powell reportedly told Mergermarket
that the company has looked at a number of options to
advance the Project.
On 19 March 2014, ASX-listed iron ore miner Gindalbie
Metals Limited advised that its joint venture partner and
China’s second largest steel maker, Ansteel, exercised
its right to convert two shareholder loans worth US$60
million to new shares in Karara Mining Limited (KML),
raising Ansteel’s ownership interest in the Karara
magnetite operation from 50% to 52.16%. Ansteel
reportedly has the right to subscribe for additional equity
in KML to repay A$230 million in further bank debt and
pre-sales agreements. If it exercises the debt-to-equity
conversions, Ansteel’s stake in KML would increase to
62%. A recent Mergermarket report suggests that Ansteel
is considering a buy out of Gindalbie’s entire interest in
KML. Although Gindalbie’s recently released half year
report showed it owes Ansteel almost A$430 million as at
31 December 2013, the Mergermarket source said Ansteel
is not contemplating a full corporate takeover of Gindalbie.
According to Jim Beyer, CEO of Perth-based miner Mount
Gibson Iron, the company could form a joint venture
with Chinese State-owned Shougang Group if it finds an
acquisition target too large to proceed alone, though a
source at Shougang would not confirm whether it would
pursue such an arrangement. Beyer reportedly said
Mount Gibson was primarily seeking targets nearby to its
existing Tallering Peak and Extension Hill operations in
Western Australia to maximise infrastructure synergies.
Mount Gibson is also said to be assessing targets in the
rest of Western Australia as well as Victoria, Queensland,
South Australia and the Northern Territory, and may
even assess other commodities like coking coal at a
later date to diversify the risk profile of its asset base.
For the moment, Mount Gibson’s focus remains on iron PAGE 3
APRIL 2014
ore, and with minimal debt, a strong operating cash
flow, a reported market capitalisation of A$911 million,
and a “war chest of A$484 million”, Beyer implied that
the company could pursue “huge” deals, though did not
disclose a particular value.
Mergermarket has reported that ASX-listed iron ore
company, Atlas Iron, may seek to form a consortium
comprising Process Minerals International and
Consolidated Minerals (who, along with Atlas, are the
primary users) to buy Utah Point if the Western Australian
Government seeks to privatise this bulk export facility.
Unnamed bankers in the sector have predicted that Atlas
will look at defensively acquiring a majority stake in Utah
Point to mitigate the risk that a new owner will raise
prices to the detriment of Atlas’ major export assets in
the Pilbara. The Utah Point bulk export facility is likely
to be the first Western Australian asset to be privatised
by the State Government, with an estimated value of up
to A$500 million and with the potential to attract interest
from pension funds and commodity traders.
The Daily Mail reported that Rio Tinto is working on a
US$8 per share cash offer for the remaining 49.2% stake
in Turquoise Hill Resources (Rio holds an existing 50.8%
interest in the listed Canadian miner). The report suggests
that the transaction could be agreed within weeks.
The Business Standard has reported that Adani may
divest 50% of its stake in the Carmichael thermal coal
project. Adani was reportedly in negotiations with China
Rail Corporation and another Chinese company but
no deal has been finalised.
Murilo Ferreira, CEO of Vale, the world’s largest iron ore
miner, is reportedly considering selling its less profitable
assets in 2014 to reduce costs. Assets potentially up for sale
reportedly include Vale’s coal mining projects in Australia.
Regulatory updates
REGIONAL PLANNING INTERESTS ACT
2014 (QLD)
The Queensland Government passed the Regional
Planning Interests Act 2014 on 20 March 2014. The new
Act seeks to resolve potential conflicts which may arise
from the interaction of competing land users like farmers
and mining companies. The Act aims to strike a balance
between protecting priority land and delivering economic
prosperity to the region. Under the Act, a resource
or other regulated activity can only occur in areas of
“regional interest” (being Priority Agricultural Areas,
Priority Living Areas, Strategic Environmental Areas
or Strategic Cropping Areas) if the proponents reach
agreement with the landholder, or if a Regional Interest
Development Approval is granted. Deputy Premier and
State Development, Infrastructure and Planning Minister,
Jeff Seeney, said that the assessment process under this
Act will not stop resource developments, but “restores the
balance of power between rural producers and resource
companies when new mining or gas developments are
proposed, and offers greater incentives for resource
companies to reach mutually beneficial agreements
with landholders.” He said this legislation provides
“an opportunity for farmers and resource companies to
be responsible for determining how these two critical
industries might coexist at a property and regional level.”
A copy of the Act can be found here. A link to the Corrs
Thinking Piece discussing what the Act means for
resources projects can be found here.
WA RESOURCES WORTH RECORD VALUE
IN 2013 BUT MUST FOCUS ON RESEARCH
The value of Western Australia’s minerals and petroleum
sector reached a record A$113.8 billion in 2013, despite
a significant drop in exploration expenditure in the State.
Western Australia’s Minister for Mines and Petroleum, Bill
Marmion, said it was a good outcome, particularly given soft
commodity prices and the strength of the Australian dollar
in the first half of 2013. Iron ore continues to be the State’s
most valuable export, contributing A$68 billion, or 76% of
the mineral sector’s total sales. Marmion reportedly said
that “strong demand from China meant the iron ore sector
achieved a record 556 million tonnes in exports [in 2013],
an increase of 16% over the previous calendar year.”
Perhaps in response to the concerning 17.1% or A$38
million reduction in spending on iron ore exploration
in 2013, the Minerals Research Institute of Western
Australia, which began operation in February this
Other newsPAGE 4
APRIL 2014
year, has plans to fund A$2.6 million over three years
to “unravel the technical challenges of exploring in the
complex geology of the State.” The Institute has State
backing, with the Government providing an additional
A$7.5 million in funding to support the new group’s
research. Marmion reportedly explained that “the
Government needs to facilitate investment in minerals
research to ensure the State’s mining operations are
competitive with operations in lower-cost jurisdictions,”
saying that “Western Australia was recently ranked
number one in the world for investment attractiveness
by the Fraser Institute, but we must continue to work
on ensuring we remain number one.”
RIO’S EXPANSIONS APPROVED
In more good news for Western Australia’s iron ore industry,
the State Government has approved A$880 million worth
of expansions by Rio Tinto, including plans to increase
production at its West Angelas mine in the Pilbara by
20%. The West Angelas expansion is expected to boost
production from 29 Mtpa to 35 Mtpa, create 290 jobs
during construction, and increase the ongoing operations
workforce by 200, to a total of 1300. It is anticipated that this
development will extend the mine’s life by around 13 years.
Rio’s expansion plans also include an expected A$200
million investment at its Western Turner Syncline mine,
also in the Pilbara. This expenditure is aimed at raising
production from 25 Mtpa to 30 Mtpa, creating around 240
construction jobs and an expected 30 permanent positions.
RESOURCESQ PARTNERSHIP GROUP
ANNOUNCED
Six resource industry experts have been selected to work
with the Queensland Government to help drive growth
and jobs in the sector over the next three decades as
part of the ResourcesQ initiative which is designed to
provide strategic advice and recommendations to the
resources sector. Minister for Natural Resources and
Mines, Andrew Cripps, said the group “will play a key
role in ensuring broad industry consultation guides our
strategic direction and ... addresses industry challenges.”
The ResourcesQ forum will be chaired by Steve de
Kruijff, former COO of Xstrata’s North Queensland
Copper Division and former Queensland Resources
Council President. The other group members are Dr
Laurie Hammond, Chair of CRC Mining, Theo Psaros,
leading transport infrastructure consultant and former
COO of MetroCoal, Brendan Ostwald, CEO of mining
services company Ostwald Bros Pty Ltd, Gavin Becker,
former CEO of Metallica Minerals, and Dr Julie Beeby,
Queensland Resource Industry Ambassador and former
CEO of WestSide Corporation Limited.
COAL PRODUCERS GRANTED INTERIM
AUTHORISATION FOR COLLECTIVE
NEGOTIATIONS
Further to our report in the March 2014 edition of the
Australian Mining Sector Update, the ACCC has issued a
draft decision proposing to grant authorisation to a group
of Queensland coal producers, known as the RG Tanna
Coal Export Terminal Producers, to collectively negotiate
with Gladstone Ports Corporation (GPC) in relation to
the terms and conditions of new coal handling and port
services agreements at Gladstone Port in Queensland.
Authorisation would provide the RG Tanna Coal Export
Terminal Producers with statutory protection from court
action for conduct that might otherwise raise concerns
under the competition provisions in the Competition
and Consumer Act 2010 (Cth). The ACCC is entitled to
grant authorisation if it is satisfied that the public benefit
from the conduct outweighs any public detriment. The
companies involved are Anglo American, BHP Billiton
Mitsubishi Alliance, Cockatoo Coal, Glencore Coal
Investments, Idemitsu Australia Resources, Jellinbah
Resources, Rio Tinto, Sojitz, Wesfarmers Resources
and Yancoal Australia.
Interim authorisation was granted on 6 February 2014
and allows the applicants to immediately commence
collective negotiations in respect of terminal and channel
infrastructure while the ACCC assesses the application,
provided the applicants do not give effect to any such
agreement unless and until final authorisation is granted.
The ACCC is seeking submissions from interested parties
in relation to its draft determination before making a final
decision. Further information on the draft determination
is available here.APRIL 2014
The contents of this document are provided solely for information purposes.
This document has been compiled using publicly available information from sources including newspapers, the websites of
companies listed in this document and other publicly disclosed documents prepared by those companies. In some instances,
references to the source documents relied upon in preparing this document have been provided in the footnotes. Although we have
taken care in compiling this document, we do not in any way warrant that the information contained in this document is accurate,
complete or correct and do not assume any responsibility or liability for that information. We do not make any recommendation that
you should invest in any of the companies listed in this document. If any person intends to invest in one or more of the companies
referred to in this document, they should first undertake, among other things, financial, tax, technical, engineering, geological and
legal due diligence on the company or project (and the company’s or project’s assets) before making that investment.
QUEENSLAND GOVERNMENT PUTS
AURUKUN ON ICE
The Queensland Government has suspended the 650 Mt
Aurukun bauxite project after deciding that development
proposals submitted in September last year by Australian
Indigenous Resources and Glencore International provided
insufficient benefit to local groups in the western Cape York
region, and the timeframes for delivery of those benefits
were too long. Deputy Premier and State Development,
Infrastructure and Planning Minister, Jeff Seeney, said that
the Government was determined to avoid the mistakes of
the past, where companies were granted rights, but were
later unable to uphold their obligations to the community.
Seeney said the Government remains interested in
developing the Aurukun resource for the benefit of the
local community and all Queenslanders, and will revisit the
Aurukun development at a later date. “Our door remains
open to proposals which would develop these resources in
a timely fashion,” he said, confirming that the State remains
receptive to “other resource development in the Cape that
[has] the potential to deliver economic benefits.”
AUSTRALIA-KOREA FTA REFERRED
TO SENATE INQUIRY
Further to our story in the March 2014 edition of the
Australian Mining Sector Update, the Senate recently
voted to refer the free trade agreement between Australia
and South Korea (KAFTA) to the Foreign Affairs, Defence
and Trade References Committee for closer inspection.
The free trade agreement reached between Australia and
Korea in December 2013 would see tariffs reduced on a
range of Australian agricultural export commodities and
would provide an estimated boost to Australia’s economy
of around A$653 million by 2030.
According to ABC Rural, Labor’s trade spokeswoman,
Senator Penny Wong, said that referring KAFTA to a
Senate inquiry is necessary because “people have raised
some concerns about whether the market access for a
number of agricultural industries is as good as it could
be”, but that Labor understands “how important [KAFTA]
is ... particularly for our beef producers.” The full text of
the KAFTA is available here.
AUSTRALIA-MONGOLIA MINING INDUSTRY
CO-OPERATION
On 18 March 2014, Minister for Foreign Affairs, Julie
Bishop, along with her Mongolian counterpart,
Luvsanvandan Bold, announced a five year, A$20 million
program to support sustainable development of the
resources sector in Mongolia. The Australia-Mongolia
Extractives Program will utilise Australian expertise in
Mongolia to help ensure benefits of the mining industry are
spread across Mongolia’s entire population by improving
industry governance, opening the Mongolian economy to
international investment and development opportunities,
and helping disadvantaged Mongolian communities to gain
access to technical and vocational training. This initiative
is additional to the Federal Government’s existing A$5
million partnership with the World Bank which aims to
strengthen management of groundwater resources in
Mongolia’s southern Gobi region.PAGE 6
APRIL 2014
BRISBANE MELBOURNE
SYDNEY
PERTH
BRUCE ADKINS
Partner, Brisbane
Tel +61 7 3228 9431
Mob +61 418 874 241
CLARE CORKE
Partner, Melbourne
Tel +61 3 9672 3255
Mob +61 405 275 045
ANDREW CHEW
Partner, Sydney
Tel +61 2 9210 6607
Mob +61 407 453 443
JOHN KELLY
Partner, Brisbane
Tel +61 7 3228 9368
Mob +61 417 757 153
LIMING HUANG
Special Counsel, Melbourne
Tel +61 3 9672 3132
Mob +61 450 679 477
ANDREW LUMSDEN
Partner, Sydney
Tel +61 2 9210 6385
Mob +61 418 110 665
MICHAEL MACGINLEY
Partner, Brisbane
Tel +61 7 3228 9391
Mob +61 417 621 910
PETER JAROSEK
Partner, Perth
Tel +61 8 9460 1804
Mob +61 420 856 281
LINDA HUAN
Senior Associate, Melbourne
Tel +61 3 9672 3415
Mob +61 410 625 786
LIZZIE KNIGHT
Partner, Sydney
Tel +61 2 9210 6437
Mob +61 402 793 072
SHAUN McGUSHIN
Partner, Sydney
Tel +61 2 9210 6915
Mob +61 414 225 340
JAMES MINCHINTON
Partner, Brisbane
Tel +61 7 3228 9333
Mob +61 420 907 478
RUSSELL PHILIP
Partner, Perth
Tel +61 8 9460 1673
Mob +61 400 299 098
JEREMY HORWOOD
Partner, Brisbane
Tel +61 7 3228 9790
Mob +61 422 150 625
ROBERT FRANKLYN
Partner, Perth
Tel +61 8 9460 1706
Mob +61 409 787 224
DAVID BECKETT
Partner, Brisbane
Tel +61 7 3228 9318
Mob +61 423 822 647
TIGHE WHELAN
Partner, Perth
Tel +61 8 9460 1653
Mob +61 411 475 766
STEPHANIE DAVESON
Partner, Brisbane
Tel +61 7 3228 9493
Mob +61 438 787 402
JONATHAN FARRER
Partner, Melbourne
Tel +61 3 9672 3383
Mob +61 414 235 063
