The controversy has intensified in the past year, as Chinese companies have swept into Australia, Canada and other countries to buy up distressed energy companies and mines. Chinese buyers have been especially active in Australia, proposing more than $8 billion in resource investments since the beginning of last year.
In June, China Minmetals Non-Ferrous Metals Co. bought most of the assets of Oz Minerals Ltd., a Melbourne-based producer of copper and other minerals, for $1.4 billion.Sinosteel Corp. snatched up iron-ore company Midwest Corp. In a hostile takeover.Yanzhou Coal Mining Co. is trying to take over Australian coal producer Felix Resources Ltd. For $3 billion, and China Non-Ferrous Metal Mining Group is angling for a controlling stake in Lynas Corp., an Australian producer of "rare earth minerals" used to make hybrid-car batteries and other goods
4) An investment may impact on Australian Government revenue or other policies. Given that ResourceCo will pay all legally mandated taxes, the major provisions of this part of the law will not be a difficulty for ResourceCo. However, this provision of the law also includes a provision that the federal government can bar foreign investment if such an investment might produce environmental damage. This would certainly be a concern for FIRB given the extremely poor record that Chinese mining companies have in China. The Chinese government in 2009 began to consider fining companies that violated overseas environmental regulations where they were investing. If such laws were to pass in China, it would make it easier for China to invest in Australian mining.
5) An investment may impact on Australia's national security. This provision of the law would allow the government to bar a foreign investment if such an investment "might affect Australia's ability to protect its strategic and security interests." It is difficult to foresee how much of a barrier to the investment the proximity of the military installation might be, but it would certainly be a concern.
6. An investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community. This seems unlikely to put up any barriers for ResourceCo.
Connections Between ResourceCo and Chinese Government
Any investment in Australian mining by ResourceCo would be assessed by the Foreign Investment Relations Board under its remit to examine proposals by foreign interests to undertake direct investment in Australia. The Board (FIRB) makes recommendations to the Government under its foreign investment policy.
Key to understanding the possibilities for ResourceCo to in vest in Australian Ore Ltd. are a number of provisions and definitions in the Foreign Acquisitions and Takeovers Act 1975. This act would probably define ResourceCO as a foreign government investor. Such as investor is defined as:
An entity is a foreign government investor if:
the entity is:
a body politic of a foreign country; or (ii)
a body politic of part of a foreign country; or (iii)
a part of a body politic mentioned in subparagraph (i) or (ii); or (b)
the entity is controlled by an entity mentioned in paragraph (a); or (c)
an entity mentioned in paragraph (a) holds an interest in the entity that satisfies the conditions specified in the regulations.
It is arguable that ResourceCo is a private corporate investor rather that a foreign corporate investor. However, for the purpose of exploring the possibility of investment it is better to assume the highest possible barrier to investment and determine if this would be acceptable.
Conclusions and Recommendations
There are a number of reasons that ResourceCo should consider investing in Australian Ore Ltd. China has a high demand for both nickel and iron, both especially for iron since this is the major element used in steel. Certainly ResourceCo would have no dearth of customers in China for iron. Given the lowered costs of investment in an Australian mining company as the world remains in a recession, ResourceCo could realize a substantial profit.
However, there are enough uncertainties and potential barriers to investment in this company that ResourceCo should certainly not rush into any investment. Such an investment is most likely to be approved by Australian government officials if Chinese investors were to move slowly and align themselves with locally powerful political operatives. There are legitimate reasons why Australian officials might prohibit such an investment or at least make it highly complicated and the company should carefully weigh these factors before proceeding with any investment.