Now a China-led metals recovery

YEARS after all that paranoia about reds under the bed and domino theories, the Chinese are coming after all. It's just that it's in the guise of well-targeted raids on our base metal juniors.

Rio Tinto's (ASX code: RIO) knockback of its rescue deal with Chinalco may not have marked the greatest moment in Sino-Australian relations. But that hasn't stopped other state-owned Chinese interests from lending their (welcome) financial support elsewhere.

Rio's Chinalco dump leaves OZ Minerals' (OZL) deal with Minmetals as the big daddy of 'em all. The transaction was looking shaky until last week's proclamation from the board that other recapitalisation proposals weren't up to scratch. Last Thursday, holders overwhelmingly approved the deal, which saw the Prominent Hill copper-gold mine excised from the deal on national security grounds.

Recent other investments include Guangdong Rising Assets Management's $215 million, 19.9 per cent stake in the Laos copper and gold miner PanAust(PNA); China Nonferrous Construction's $US10m ($12.3m) equity stake in zinc miner Terramin Australia (TZN); and Guangdong Foreign Trade Group's $62.5m investment in indebted polymetallic group Kagara Zinc (KZL).

Earlier, Zhongjin Lingnan threw a $45m lifeline to struggling Broken Hill stalwart Perilya (PEM) in return for a 50.1 per cent stake, while China Nonferrous Metal Mining's $500m in Lynas Corp (LYC) will enable the rare-earths group to progress its Mt Weld project in Western Australia.

One day we may rue selling off the (resources) farm on the cheap, a la MIM Holdings (acquired by Xstrata for a steal). Indeed the Perilya deal looks cheap, in that the investment coincided with the Broken Hill ops returning to cash-flow positive status thanks to recovering zinc prices. But as far as your scribe is concerned, foreign investment has been intrinsic to our mining scene. Money is money and the asking price is the asking price.

The encouraging thing is the forward-thinking Chinese are presaging a strong base metals recovery. Indeed copper and zinc prices have already recovered something like 60 per cent this year, although are still well off their boom-time highs.

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