Tailings dam protests

The #politas twitter hashtag these days consists of an inordinately large number of tweets complaining about the proposal to build a new tailings dam for the Rosebery mine. A large number of those tweets make specific mention of the ownership of the mine; like this one:

Tarkine protests continue as two protesters halt machine. Day 21 calling for Chinese state-owned miner MMG to cease plans for their Tarkine tailings waste dam and remove machines now. While we wait for the government to protect these old rainforests. #politas

Now, why exactly the Bob Brown Federation are interested in drawing attention to the ownership of the mine in the context of the tailings dam I couldn’t say. I mean I could speculate; but personally I can’t see the relevance and quite frankly I’d wonder if the BBF cared about who owned the place before the tailings dam issue came to a head. Anyway, it wasn’t always so. How did we get here?

Pasminco

I don’t know much about those days, but according to Wikipedia:

Pasminco was an Australian mining company founded in 1988. It was placed in voluntary administration in September 2001 with its assets sold in stages until 2004 when the remaining assets were spun-off to Zinifex

Amongst those assets were the Rosebery mine. The Age reported:

In early 1997 Pasminco bought the Century project from CRA (now Rio Tinto) for $345 million, raising nearly $700 million of new equity to fund the deal and develop the project.

The development cost Pasminco $788 million and it also took on another $250 million of lease finance for the project infrastructure - its total investment in Century was almost $1.4 billion.

Pasminco was a publicly listed company in Australia, trading on the ASX as PAS.

Zinifex

Again, Wikipedia:

Zinifex was an Australian company that operated lead and zinc mines, refineries and a lead smelter. It was established in April 2004, when the assets of Pasminco were spun-off. In 2008 it merged with Oxiana to form OZ Minerals.

Zinifex was also listed on the ASX, as ZFX. Again, Wikipedia:

After floating on the ASX, Zinifex proved successful mainly due to the company keeping no hedges in place, and benefiting from rises in the zinc price. The share price rose from $1.80 in April 2004 to over $18 in December 2006.

In December 2006, Zinifex announced it would merge its smelting operations with those of Umicore, to form Nyrstar that was floated in October 2007. This left Zinifex as purely a mining company.

Nyrstar still operate the zinc smelter in Hobart. The company has corporate headquarters in Switzerland.

The SMH reported:

Oxiana Ltd has agreed to a $6.2 billion merger with Zinifex Ltd to create the world’s second largest zinc producer, ending months of speculation of a potential tie-up between the two.

Oxiana operates the Sepon copper-gold mine in Laos, Golden Grove zinc-copper-gold mine in Western Australia and is developing the Prominent Hill copper-gold mine in South Australia.

Zinifex operates the Century zinc mine in Queensland and the Rosebery zinc mine in Tasmania.

Mr Michelmore said the merger would have no effect on Zinifex’s $852 million takeover of nickel hopeful Allegiance Mining Ltd.

At the time, Oxiana had the Prominent Hill deposit that it had acquired from Minotaur Exploration. Again, Wikipedia:

Oxiana Limited decided to develop the mine in August 2006, having first got involved in the project in 2003 ….
The mine, which cost A$1.15 billion to develop… went into production in February 2009.

So Oxiana had a great asset that it was developing but it was spending a lot of cash to do so. Zinifex had some mature assets and lots of available cash, some of which it had decided to spend on Allegiance Mining Ltd who were developing the Avebury Nickel Mine near Zeehan. Nickel was hot stuff in 2008, and Reuters reported (in relation to the proposed acquisition):

“With nickel production due to commence in the second quarter of 2008, this mine would rapidly expand Zinifex’s revenue and profit profile,” Zinifex Chief Executive Andrew Michelmore said in a statement.

The zinc market, Michelmore said, was headed for a “large surplus” this year.

Zinifex was assembled from the remnants of the Pasminco group, which collapsed in 2001 owing billions of dollars due to depressed zinc prices and bad hedge bets.

Zinifex’s big profit rise was largely the result of a A$960.6 million one-off net profit on the sale of its zinc and lead smelting operations into the Nystar NYR.BR partnership with Belgium’s Umicore UMI.BR.

Excluding this, the profit was A$228.1 million.

So, what happened? Well, Zinifex and Oxiana merged to form OZ Minerals, and at basically the same time, Zinifex acquired Allegiance Mining - which took a fair chunk of their cash. And then the GFC happened, and nickel prices tanked. Avebury was shuttered in early 2009 and has not (to this date anyway) reopened.

The sale

I’m not a finance guy, but here’s a few facts. In September 2008 Oz Minerals wrote to their shareholders:

We have a strong balance sheet, no net borrowings and the ability to generate healthy cashflows…We have a very strong pipeline of growth projects stretching out over the next decade, and we have the financial capability to finance the pipeline without being beholden to the financial markets.

One month later in November 2008, Oz Minerals said:

OZ Minerals is in the fortunate position of having a healthy balance sheet, a good cash position and an enviable suite of projects that underwrite the future growth of the Company…

By December, they had entered a trading halt:

The Company is seeking suspension while it completes the refinancing of some of its current loan facilities. While negotiations between OZ Minerals and its lenders have progressed considerably…OZ Minerals has not been able to extend the time by which it is required to refinance facilities in the amount of US$560 million to January 2009, as it was seeking to do.

My recollection - which may be faulty and I am happy to correct if someone can show me to be incorrect - is that the lenders involved a group of Australian banks including the CBA and they were unwilling to refinance the debt. The end result was that a Chinese owned company China Minmetals ended up with almost all of the assets. The ABC:

The company was today launching Minerals and Metals Group (MMG), the new company created out of the former Oz Minerals mines purchased by Minmetals.

MMG is headed up by former Oz Minerals chief executive Andrew Michelmore.

The former Oz Minerals assets were purchased for just over $1.7 billion, and include the world’s second biggest zinc mine, Century.

Oz Minerals has been left with only one major asset, the Prominent Hill gold and copper mine, but eliminated its debts and now has cash on hand.

So; that was how the Chinese ended up with Rosebery. Pasminco went bust and Zinifex took over. Zinifex had cash but merged with Oxiana and took on the ill-fated acquisition of Allegiance in lead-up to the GFC and hit a financial wall. The Chinese swept in and picked up the pieces, and have had ownership ever since. It has almost certainly turned out to be a very profitable investment for them; it’s a shame our Australian lenders wouldn’t or couldn’t come to the party in 2009 but that’s history.

As a footnote; Minmetals (commonly known as MMG) wanted Prominent Hill too; it was only a blocking action by the Australian Government that prevented it. The block was on the basis that the mine is located near sensitive defence properties; certainly it is located north of the Woomera rocket testing facility.