Australia: Australian Resources Sector Update - November Edition

November Edition

Introduction

Welcome to the November edition of the Australian Resources Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients who are interested in the Australian resources industry.

This publication brings together a brief summary of information on recently completed deals, market rumours and potential opportunities, and relevant regulatory updates.

Recent Announcements

As discussed in the October edition of the Australian Resource Sector Update, ASX-listed iron ore miner Sundance Resources has accepted China's Hanlong (Africa) Mining Investment Limited's offer to acquire all of the issued shares in Sundance Resources at A$0.45 per share. On 22 October 2012, Sundance Resources announced that Hanlong has secured two acceptable financier commitment letters. The commitment letter from the China Development Bank confirms the agreement to provide a debt facility of up to US$1.022 billion, subject to satisfaction of the Bank's credit approval processes. The commitment letter provided by the Bank of Deyang Co Ltd confirms its offer to provide loans to finance the balance of the consideration, subject to compliance with the Bank's conditions.

Hanlong has now provided to Sundance Resources all of the information required for the scheme booklet to be finalised and lodged with ASIC. The parties have extended the end date of the Scheme Implementation Agreement from 31 December 2012 to 11 January 2013. The target date for financial close is now 8 January 2013.

ASX-listed coal miner Bandanna Energy announced on 22 October 2012 that it has submitted a mining lease application (MLA 70486) for its Springsure Creek Project, which is located in the Bowen Basin in Queensland. Following the submission of the mining lease application, Bandanna Energy is now in a position to discuss potential joint ventures and debt financing for the project. All design work on the Definitive Feasibility Study was completed in September 2012 and it is now subject to an independent technical review which will form the basis of discussions with potential project debt and equity stakeholders. Bandanna Energy has announced that it will release the draft Environmental Impact Statement for the project for public review by the end of 2012.

ASX-listed Northern Iron announced on 19 October 2012 that it has provided both of its bidders, India's Aditya Birla and Prominvest AG, with an extension for submission of their final binding offers to acquire all of the shares in Northern Iron. This extension is to enable both Aditya Birla and Prominvest to complete their stage two due diligence. The final binding offers must now be submitted by early November 2012. Northern Iron has noted that there is no certainty that a binding offer to acquire all of the shares in Northern Iron will be made, or that a binding offer will be made at the prices indicated in Aditya Birla's and Prominvest AG's indicative non-binding proposals.

Northern Iron also announced a 1 for 3 accelerated non-renounceable pro rata entitlement offer at A$0.45 per new security on 4 October 2012. The intention of the entitlement offer is to raise approximately A$55.5 million. The offer includes both an institutional entitlement offer and a retail entitlement offer, and is expected to close on 26 October 2012. Under the indicative timeline announced, the new securities issued under the retail entitlement offer will commence trading on 8 November 2012.

ASX-listed Gujarat NRE Coking Coal announced on 16 October 2012 that it is undertaking a rights issue to raise approximately A$50.5 million. The rights issue comprises a non-renounceable offer of one fully paid ordinary share for every four existing shares held by eligible shareholders at A$0.18 per share. The rights issue is to be partially underwritten up to the amount of approximately A$31.68 million by Wonga Coal Pty Ltd. No shares will be issued under the rights issue until the minimum subscription of A$31.68 million has been received. The funds raised will be used for capital expenditure on mine development and plant and equipment for Gujarat's coal mines at Wongawilli and NRE No. 1 in New South Wales.

ASX-listed coal miner Bowen Energy announced on 10 October 2012 that Bhushan Steel (Australia) Pty Ltd now holds over 90% of Bowen Energy's issued shares. On 12 October 2012, it was further announced that Bowen Energy has received a letter from Bhushan Steel relating to the compulsory acquisition of the remaining shares. Bhushan Steel has indicated that, if it does not receive any objections from shareholders within one month after the shareholders are notified of the intended compulsory acquisition, then it will be in a position to complete the acquisition and pay the cash acquisition price.

ASX-listed iron ore miner Arrium announced on 1 October 2012 that it has received and rejected an unsolicited and conditional acquisition proposal from a consortium consisting of Noble Group Limited, POSCO Australia Pty Ltd, National Pension Service of Korea, Korea Investment Corporation and Korea Finance Corporation. Arrium met with the consortium to discuss the proposal and came to the view that the proposal undervalued Arrium and was highly conditional. Arrium's board has rejected the proposal on the basis that the proposal is not in the best interests of Arrium's shareholders. It was later reported in The Australian that the consortium may have the capacity to raise its offer for Arrium by 20% according to one analyst.

It has been reported in the Australian Financial Review that ASX-listed iron ore miner Atlas Iron may also become a takeover target for the consortium that is interested in Arrium. It has been reported that the consortium's interest in Arrium arose as a result of its iron ore division and as Atlas Iron has lower costs than Arrium and holds A$400 million in cash (as opposed to Arrium's A$2.10 billion debt), the report suggests that Atlas Iron may be a more attractive takeover target.

ASX-listed Legacy Iron Ore announced on 25 September 2012 that it was conducting a strategic review of its project portfolio. Legacy is seeking to reassign its gold assets to a separate ASX-listed company, and has stated that this will lead to the best outcome for shareholders and will allow Legacy to concentrate on its Mt Bevan Iron ore project in Western Australia.

On 19 October 2012, ASX-listed Santos announced that the South Australian Cooper Basin Joint Venture (comprising Santos, ASX-listed Beach Energy and ASX-listed Origin Energy) had commenced commercial natural gas production from its Moomba-191 shale well in South Australia. Hailed as Australia's first commercial shale gas production, it was described as a significant step towards unlocking the potential of unconventional resources in the Cooper Basin.

Recently Completed Deals

Further to our story in the October edition of the Australian Resource Sector Update in relation to China's Linyi Mining Group's acquisition of ASX-listed coal miner Rocklands Richfield, Linyi Mining announced on 26 September 2012 that it intends to compulsorily acquire the remaining shares in Rocklands, and it was announced on 12 October 2012 that Rocklands would be removed from the ASX on 15 October 2012.

Market Rumours and Opportunities

Jim Beyer, the Chief Executive of ASX-listed iron ore miner Mount Gibson Iron, has been reported in the Wall Street Journal as saying that Mount Gibson Iron is seeking coal acquisitions. Beyer explained that Mount Gibson Iron was considering opportunities in coking coal now that prices were similar to other commodities.

It has been reported that ASX-listed iron ore miner Havilah Resources is seeking a partner for its Maldorky iron ore project in South Australia. Chief Technical Officer, Chris Giles, indicated that Havilah Resources has already discussed the project with a number of interested Chinese companies. Havilah Resources is reportedly willing to consider offers from both mining and non-mining companies, as long as the companies are willing to inject capital into the project.

Further to our story in the October edition of the Australian Resources Sector Update in relation to China's Meijin Energy Group's conditional takeover offer of ASX-listed iron ore miner Western Desert Resources, it has been reported that Meijin Energy is still carrying out due diligence. It has been reported that the due diligence process is expected to take between four and six weeks. The deadline for the deal is 24 December 2012 but it is reported that this deadline may need to be extended by a number of weeks.

It has also been reported that Meijin Energy has not yet filed an information report with China's National Development and Reform Commission in relation to the proposed acquisition. Western Desert Resources' recommendation that shareholders accept Meijin Energy's offer was subject to the absence of a superior bid. The Australian Financial Review has reported that ASX-listed coal miner Xstrata may be a possible rival bidder for Western Desert Resources.

It has been reported in the Australian Financial Review that investor site visits to projects operated by ASX-listed Whitehaven Coal hosted by Credit Suisse, reportedly a creditor of Nathan Tinkler, may indicate that Credit Suisse is planning a block trade for Tinkler's 21.4% stake in Whitehaven Coal. In related news, the Australian Financial Review has reported that Tinkler was said to be considering the removal of certain Whitehaven directors with the aim of taking control of the board. Tony Haggarty, Managing Director and CEO of Whitehaven, has stated that none of the directors of Whitehaven Coal have been approached by Tinkler.

Since Mr Haggarty made this statement, Whitehaven Coal has announced that Mr Haggarty intends to relinquish his role as Managing Director and CEO of Whitehaven Coal (although he has not specified an exact date), and that the company is in the early stages of planning Mr Haggarty's succession.

The Australian Financial Review has reported that ASX-listed Origin Energy is a likely buyer for the Cobbora coal project, a New South Wales State-owned project. It is anticipated that the New South Wales Government will sell Cobbora in the next round of energy asset sales.

It has been reported that JFE Shoji Trade, the Japan-based steel processor and trader, is considering investing in coal projects in Queensland. A spokesperson has stated that, although there are no current discussions at the moment, JFE is open to investing in greenfield or brownfield projects either through investing directly in a project or acquiring a holding company, and would consider both minority and majority interests. JFE has set aside JPY$10 billion (approximately A$121 million) for coal mining investments.

It has been reported that ASX-listed iron ore miner Brockman Resources is looking to divest up to 40% of itsMarillana Iron Ore Project in Western Australia. Chief Executive Officer, Russell Tipper, indicated that potential investors should be willing to invest more than A$1 billion. The 21st Central Business Herald had earlier reported that Brockman Resources has been in talks with Chinese steel producers. Colin Paterson, Brockman Resources General Manager, has been reported to say that many Chinese companies have shown an interest in the project, which is due to start production in 2016.

The Australian Financial Review and The Australian have reported that ASX-listed iron ore miner Fortescue Metals Group may reactivate delayed expansion plans of Kings iron ore project in Western Australia by the end of 2012, following the completion of a U$4.5 billion recapitalisation.

In related news, it has also been reported in the Australian Financial Review that Fortescue's decision to repay U$715 million in unsecured notes could enable it to sell a minority holding in the Cloudbreak or Christmas Creek iron ore mines in Western Australia. CEO Nev Power has also been reported in the West Australian to say that Fortescue is open to an approach over shared infrastructure from Gina Rinehart's Roy Hill Holdings or other potential Pilbara projects.

Regulatory Updates

Browse (Land) Agreement Bill 2012 (WA)

The Browse (Land) Agreement Bill 2012 (WA) was introduced to the Legislative Assembly and received its second reading speech on 20 September 2012. The Bill is intended to ratify and authorise the implementation of an agreement between the State of Western Australia, the Native Title Party and the Kimberley Land Council Aboriginal Corporation in relation to the establishment of an LNG precinct near James Price Point in the Kimberley region of Western Australia.

The provisions of the Bill relate to:

• the permitted use of the LNG precinct and the closure of the LNG precinct and port operations at the end of precinct life;
• the remediation and rehabilitation of the land within the LNG precinct and grant of title within the LNG precinct to the Native Title Party at the end of precinct life; and
• limitations on further LNG development of the Kimberley Coastline.

Western Australian Premier, Colin Barnett, has stated that this is the first time in Western Australia's history that this kind of action has been taken.

Other News

Queensland competitive cash bidding process

A new competitive cash bidding process will apply to companies seeking the right to explore on highly prospective coal, petroleum and gas resources tenements in Queensland.

Minister for Natural Resources and Mines, Andrew Cripps, outlined the new exploration tender process on 9 October 2012. Minister Cripps stated that the new framework would involve both the controlled and competitive release of land for coal, petroleum and gas exploration. He stated that it may also include a cash bidding process that reflects the potential in-ground value of the resource for certain areas that are released. Through competitive cash bidding, companies will bid for the right to explore highly prospective land and a 'preferred tenderer' will be identified through an assessment process. Mr Cripps stated that non-cash land releases will continue in greenfield and under-explored areas. It is expected that the first round of petroleum and gas areas available under the new competitive cash bidding process would be released for tender in the near future.

The mining and gas industries have criticised the announcement. Australian Petroleum Production and Exploration Association Chief Executive Officer, David Byers, stated that a cash bidding system will reduce the pool of funds for exploration.

Queensland recommences uranium mining

Queensland Premier Campbell Newman announced on 22 October 2012 that the Queensland Government will convene a three-member implementation committee to oversee the recommencement of uranium mining in Queensland, which has not occurred since 1982. Premier Newman stated that the announcement followed strong support for the uranium industry from the Federal Labor Government.

Minister for Natural Resources and Mines, Andrew Cripps, said that Queensland's known uranium deposits are worth an estimated A$10 billion. Minister Cripps stated that the Queensland Government would not consider the development of nuclear energy production or nuclear waste disposal plants in Queensland.

Western Australian uranium mining

It has been reported that Western Australia's first uranium mine was a step closer in its development. On 10 October 2012, Western Australian Environment Minister, Bill Marmion, announced that ASX-listed Toro Energy's proposed uranium mine near Wiluna had been granted final environmental approval, subject to a number of strict conditions. The approvals timeline is still subject to a decision by the Federal Minister and secondary approvals.

Western Australian grant of offshore petroleum exploration permits

Martin Ferguson, Federal Resource and Energy Minister announced on 13 September 2012 the grant of seven new offshore petroleum exploration permits for the coast of Northern Territory and Western Australia as part of round 2 of the 2012 Exploration Acreage Release.

First instalment of Mineral Resources Rent Tax

At a press conference held on 25 October, Treasurer Wayne Swan announced that, despite the Federal Government's initial forecast that the Mineral Resources Rent Tax would yield $3 billion in the 2012/2013 financial year, the tax yielded no revenue for the first quarter. Mr Swan defended the tax, stating that "the design of a resource rent tax is such that it delivers the revenue when profits are high and in the case of commodities where prices are high and of course when they go down, it doesn't necessarily deliver the same amount of money".

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