13/08/2009 - 00:00

FIRB hurdles remain for Chinese money

13/08/2009 - 00:00


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MINERS expect little benefit from the federal government's easing of foreign investment review regulations, which is aimed at speeding the flow of foreign capital into the junior end of the sector.

MINERS expect little benefit from the federal government's easing of foreign investment review regulations, which is aimed at speeding the flow of foreign capital into the junior end of the sector.

Private foreign investors will now be allowed to buy up to 15 per cent of any company or project valued at $219 million or less without first gaining Foreign Investment Review Board approval. The previous value threshold was $100 million.

While that should notionally increase the flow of foreign funding into the junior mining and exploration sector, many miners believe FIRB regulations will remain a hurdle for investment from China.

Most Chinese parties seeking to invest in junior Australian mining and exploration companies and projects are state-owned-entities. That is, they are controlled by the Chinese government.

Consequently, they will remain subject to scrutiny by the FIRB, which must review all investment applications by foreign governments.

Will Burbury, chairman of Pilbara iron ore explorer Warwick Resources, said the FIRB changes would make little difference to most explorers reliant on funding from China.

"It doesn't change a thing," Mr Burbury told WA Business News.

"From a practical perspective, almost every Chinese investment is through a government-owned company, so you will still need FIRB approval for that."

He said it was prudent to closely monitor such investment in top-tiers assets and companies, as with Rio Tinto. However, there was no reason to apply the same restrictions to the junior sector, which did not have access to alternative sources of funding for its generally less strategic and more speculative ventures.

"The junior market is a natural fit (for Chinese investment)," he said.

"The junior space is a slightly different space (to the top tier) in that they are riskier projects by nature and therefore there should be some consideration given to that."

But any eased restrictions on Chinese government investment should include more regulatory focus on establishing links between different Chinese investors in a company in order to protect the rights of ordinary minority shareholders.

Association of Mining and Exploration Companies chief executive Simon Bennison said AMEC was yet to canvass the views of its members, but he believed most would consider the changes to be a step in the right direction.

However, he agreed that the retention of review requirements for all foreign-government backed investment was likely to remain an obstacle to much Chinese investment in the sector.

Heron Resources managing director Mat Longworth said Heron was among the few companies likely to benefit from the changes.

In May, the laterite nickel developer struck an alliance with major Chinese battery manufacturer Ningbo Shanshan Co to study the viability of processing ore from Heron's Yerilla project to produce a nickel-cobalt concentrate for battery manufacture.

"It (the change) will be good news for the Yerilla project," he said, noting that the Shanghai-listed Shanshan is neither owned nor controlled by the Chinese government, and is 30 per cent owned by Japanese group Itochu.

As part of the agreement, Shanshan will pay a 20 per cent premium over the 15-day average price of Heron shares to buy an initial 4.99 per cent stake in the company.

Subject to the study results, Shanshan will then sole fund development of the Yerilla project to earn a 70 per cent interest.

Mr Longworth said initial feedback from Shanshan suggested that development could cost a fraction of the $1.2 billion cost of a conventional laterite project that was forecast in a scoping study last year.

Heron sent a 40-tonne bulk sample to China for process testing in July, and Mr Longworth said the pilot study was expected to be complete by year's end. Subsequent feasibility studies should also take minimal time to complete, given the extent of work completed for last year's scoping study.


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