China emerges as a white knight for the mining industry

In metals and mining, Chinese companies are being treated as saviors in a time of distress as much as cash-rich buyers of natural resources.

A Chinese company offered this week to buy control of the struggling Australian zinc miner Perilya, and the Chinese are also pursuing another zinc miner, Oz Minerals, which is scrambling to refinance its debt.

All eyes are on China.

Few companies will admit to being in distress, but for miners across the globe, the environment looks increasingly tough. Commodity prices have slumped, costs are rising and revenue is falling. Government-sponsored Chinese companies, flush with cash, appear ready and eager to take more control.

Plenty of obstacles could prevent China from being the miners' first choice as a buyer of their assets.

For one, China has indicated that, while it is interested in investing abroad, it is happy to be patient amid the current turmoil. Chinese companies are also feeling the economic pinch, though a state-run company can secure access to government cash if needed.

Also, any alliance with a Chinese company carries political baggage. Australia has long worried that a Chinese foothold in the industry will result in a sharp reduction of wages, and there are concerns that Chinese-controlled mines would lower prices to make their output more affordable to Chinese customers.

But politics can take a back seat if a company is on the brink of collapse.

On Tuesday, Shenzhen Zhongjin Lingnan Nonfemet, one of the largest zinc producers in China, offered 45.5 million Australian dollars, or $30 million, for a controlling stake in Perilya, which had been reviewing a takeover offer from a fellow Australian zinc miner, CBH Resources, in an effort to combine their aging mines.

By offering a 53 percent premium to Perilya's closing share price on Dec. 5, it is easy to see why some consider Zhongjin a white knight. And there are plenty more mining candidates who would welcome China's help, bankers and analysts say.

Debt-saddled Oz Minerals, one of the world's largest miners of zinc, has said it attracted interest from a number of parties for several of its assets. Likely candidates include several Chinese metals companies, like Citic Resources, Minmetals and Chinalco.

The Canadian miner Teck Cominco is considering the sale of minority stakes in core assets, including its recently acquired Elk Valley Coal business. The company needs to pay down a $5.8 billion bridge loan.

Chinalco has said it plans to lift its stake in Rio Tinto to at least 14.99 percent after BHP Billiton scrapped a takeover bid.

China's hunger for overseas resources assets is well documented. What is less well-known is that, at least with mining companies, an investment from a Chinese company may be a company's only hope of getting through the current trough in the commodity cycle.

Copyright and Exemption Declaration :¢ÙAll articles, pictures and videos that are marked with "China Aluminum Network" on this website are copyright and belong to China Aluminium Network (www.alu.com.cn). When transshipment, any media, website or individual must list the source from "China Aluminium Network (www.alu.com.cn)". We seek legal actions against anyone that disobey this. ¢ÚArticles that marked as copy from others are for transferring more information to readers, do not represent or endorse their opinions or accuracy and reliability. When other media, website or individuals copy from our website, must keep the source. Anyone that changes the articles' sources will hold the responsibilities for copyright and law problems. We also seek legal actions against anyone that disobey this. ¢ÛIf any articles copied by our website concern the copyright and other problems, please contact us within one week.