Freehills partners Rodd Levy and Neil Pathak (M&A/Takeovers), John Tivey (Energy & Resources) and Tim McEwen (Equity Capital Markets), with senior associates Paul Branston, Richard Oliver and solicitors Leigh Mollison and Sarah Rogers, led the Freehills team advising OZ Minerals on its recent US$1.386 billion sale of certain of its mining interests to China Minmetals Non-Ferrous Metals Co. Ltd (Minmetals) which completed on 16 June 2009. The proceeds of the sale have been used by OZ Minerals to repay its banking syndicate and OZ Minerals continues with ownership of the Prominent Hill gold/copper mine in South Australia, essentially with no debt and a significant cash balance in excess of US$575 million.
OZ Minerals had been under considerable pressure since late 2008 when tightening credit markets and falling commodity prices hindered OZ Minerals’ efforts to refinance approximately A$1.3 billion of debt by the original 30 November 2008 deadline. The Freehills banking group, led by Dan Brealey and senior associate Martin Macdonald, advised OZ Minerals in its dealings with the banks.
On the corporate aspects of the deal, to begin with, asset sale agreements were prepared for almost all of OZ Minerals key projects/assets. At the same time OZ Minerals explored a number of capital raising proposals. However, other than an agreement to sell the Martabe project, the asset sale and capital raising processes did not provide an outcome for OZ Minerals.
In January, Minmetals came forward with a proposal which would solve OZ Minerals’ refinancing issues. Minmetals would acquire all of the OZ Minerals shares for cash by way of a scheme of arrangement. A deal was negotiated, a scheme implementation agreement signed and the scheme of arrangement was announced in mid-February 2009. However, on 27 March 2009 the Federal Treasurer announced that he would not approve the acquisition if it included Prominent Hill, due to national security concerns arising from Prominent Hill being located within the Woomera Prohibited Area weapons testing range.
In the days that followed, OZ Minerals and Minmetals renegotiated the transaction so that Minmetals would acquire all of OZ Minerals’ key assets other than Prominent Hill. The revamped transaction was structured as a sale of shares in the subsidiaries that operated the assets being acquired by Minmetals.
The sale was subject to a number of conditions including OZ Minerals shareholder approval, FIRB approval and Chinese regulatory approvals. The independent expert engaged by OZ Minerals concluded that the sale price was below its valuation of the assets (which was between US$1.385 and US$1.6 billion) but that the sale was still in the best interests of OZ Minerals’ shareholders given OZ Minerals’ financial position, its banking deadlines and the lack of alternatives offering greater value. FIRB approval was granted on 23 March 2009, conditional upon Minmetals providing legally enforceable undertakings relating to the operation of the assets it was acquiring and pricing of output.
Commodity prices and equity markets improved in the lead up to the shareholder meeting, prompting parties to submit unsolicited proposals to recapitalise OZ Minerals as an alternative to the Minmetals transaction. Two separate proposals were given to the OZ Minerals board after close of business on the Friday before the shareholders meeting. The OZ Minerals Board carefully considered the proposals but determined them to be inferior on value and lacking in certainty.
On the night before the shareholder meeting to approve the sale, Minmetals agreed to increase the purchase price by US$180 million. OZ Minerals’ shareholders approved the sale on 11 June 2009 and the sale was completed on 16 June 2009.
This transaction illustrates the impact which the global financial crisis is having on commodity prices and consequently on Australian companies and their ability to refinance debt. Although recent improvements in equity markets may begin to mitigate some of these effects. This transaction also demonstrates China’s continued and growing interest in the Australian resources sector and the importance of FIRB and national interest considerations in acquisitions by entities associated with foreign governments.
Freehills advised OZ Minerals on all aspects of the transaction including the proposed scheme of arrangement, sale of assets, recapitalisation proposals, FIRB and in dealing with its financiers. It was an excellent example of the breadth and depth of expertise at Freehills and separate teams working together in a seamless and coordinated manner to achieve a successful outcome for the client.
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