THE revelation that Rio Tinto could turn to its Chinese shareholder, Chinalco, rather than a rights issue to all shareholders to help shore up its balance sheet is only the latest in a string of transactions that has concerned some local investors.
Last week the Drum took calls from shareholders in Perilya and Mount Gibson Iron, both of whom were concerned Chinese companies were taking advantage of the downturn in metals and equities markets to gain control of valuable assets at too low a price. It is important to make clear that Chinese companies are not the only ones bargain-hunting at the moment, as mid-tier miners try desperately to stave off administration.
US keen for a punt
Vulture - ahem, value - investors, particularly from the US, are getting in on the act.
On Friday, the troubled nickel miner Albidon reached an agreement with a private Australian-American investment fund, Pacific Roads Resources Fund, to raise up to $US26 million ($41 million). The deal is highly conditional and the terms onerous but without the funds, the miner is facing collapse.
Similarly, Moly Mines in October accepted $US150 million of interim funding from US group TCW. And when Fortescue Metals needed an equity injection to kick start a massive junk bond raising a few years back, it also turned to the US, in the form of investment group Leucadia National.
These American investors, however, are likely to have very different aims for their investments than some of their Chinese counterparts.
They are not interested in offtake contracts and are therefore more likely to be seeking to sell in the future at a big profit, possibly into takeover bids.
In Australian terms, they are more equivalent to resources funds like Lion Selection and the LinQ Resources Fund, which tend to invest in early-stage projects in hopes of divesting the stake at a large profit at a later date.
Traders get in on the act
A second investment model is the equity/offtake arrangement traditionally practised by smelters and metals traders.
Some of these are Western investors, particularly traders like Glencore, Sempra Metals and Noble Group.
They typically provide funding in return for an agreed percentage of the mine's production.
Japanese and Korean groups - both traders like Mitsui and Mitsubishi - and smelters like Korea Zinc and Toho Zinc are also active in such deals.
Kagara Zinc is believed to be finalising a $10 million placement to an unnamed trade partner, possibly with an attaching credit facility and share purchase plan, to raise $25 million to $30 million.
Companies like Mitsui and Mitsubishi also have direct equity stakes in some projects - including iron ore mines and coalmines owned by BHP Billiton and Rio - instead of equity stakes in miners.
Since China has plenty of smelters and metals traders of its own, and is by far the world's largest consumer of most metals, it should come as no surprise that Chinese companies are interested in similar deals.
The difference, however - and one that gnaws at many Australian investors - is the Chinese companies tend to be at least partially owned by the Chinese Government.
That raises the issue of possible co-ordination, particularly since Chinese companies seeking to invest in overseas companies must obtain approval from Beijing.
China's Zhongjin still waiting
The Treasurer, Wayne Swan, took a relatively tough stance last year against Chinese investments in Australian miners by forcing state-backed companies to gain Foreign Investment Review Board approval for any stake, even if was below the usual 14.9 per cent threshold for foreign ownership.
The board approved Sinosteel's full takeover of iron ore miner Midwest before such scrutiny took place, but would not allow the Chinese metals trader to gain full control of Murchison Metals as well. Of course, the Murchison decision was made in different times - namely, before the onset of the global financial crisis.
Since then, the board has not faced a big test.
But it is notable that it has yet to approve Chinese smelter Zhongjin's bid to take a 50.1 per cent stake in Perilya, even though the application was made in December and a shareholder vote on the deal will occur this week.
If the deal is not approved, Perilya may have to close its Broken Hill mine at the cost of hundreds of jobs or conduct an even more dilutive capital raising.
It may be that the board is simply taking its time due to the Christmas holidays, or perhaps it is not a fan of Zhongjin gaining control of more than 49.9 per cent of Perilya.
In any case, the decision will set a new precedent for Chinese companies to follow during the financial crisis, making it of interest to all investors in Australian miners.
