11 Mar 2009

Downturn brings unique opportunities for Australia's energy and resources sectors

Sydney, 11 March 2009: Australia's energy and resources sectors stand to benefit from opening their doors to Chinese investors interested in securing long-term energy and metals supply, according to two partners at national law firm Clayton Utz.

Energy and resources law specialist Susan O'Rourke said despite the slowing Asian demand for Australian commodities, Chinese investors in particular would continue to explore opportunities to acquire strategic stakes in Australian energy and resources companies.

Recent examples include Zhongjin's acquisition of a majority stake in zinc and lead miner Perilya which has received Foreign Investment Review Board approval, Chinalco's moves to increase its existing stake in Rio Tinto, the offer by Minmetals for diversified miner Oz Minerals, and Hunan Valin's proposed stake in new iron ore producer, Fortescue.

Ms O'Rourke, whose experience includes advising Western Australian company Yilgarn Infrastructure Limited on its A$3 billion Oakajee Port and Rail Project proposal - a project to be partly funded by five major Chinese companies - said current economic conditions including a tight lending environment and volatile equity markets meant many energy and resources companies were struggling to secure pre-production and pre-feasibility development funding.

"The banks have traditionally been reluctant to lend until the reserves and the offtake are secure, but in the current market they are showing an enormous reluctance to commit to even the most resilient of projects," she said.

Ms O'Rourke said with the energy and resources sectors hit hard by the global economic crisis, both established and emergent miners stood to benefit from engaging with Chinese investors.

"There is a unique opportunity for Australian companies to benefit from the synergies available through a convergence of demand and supply side interests," she said.

"This is a once in a generation opportunity for Chinese investors to use their cash reserves to buy stakes in Australia's mining and energy companies and realise the growth potential - which has two-way benefits."

Barry Irwin, a senior energy and resources partner at Clayton Utz who also leads the firm's China strategy said: "Although the issue of whether transactions involving Chinese investors will gain FIRB approval is very topical in Australia at the moment, the history of FIRB's decision-making gives no basis for pessimism, although perhaps some approvals may be subject to conditions. The Chinalco deal is the one most likely to come under close FIRB scrutiny and may be treated differently."

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.