BHP Billiton "Behaving Badly"

By Wan Xiaoxiao
Published: 2009-11-04

Translated by Liu Peng
Cover, issue 441, October 26, 2009
Original article:

An attempt by a Chinese state firm to acquire an Australian iron ore miner is once again unlikely to succed due to competition from Australian-based global mining giant BHP Billiton.

BHP Billiton announced in October that it had entered into an agreement that would see the company acquire all outstanding shares of United Minerals Corporation NL (UMC) for 1.30 Australian dollars per share. The deal will cost BHP Billiton approximately 204 million Australian dollars.

The aggressive play came a month after China Railway Material Commercial Corporation (CRMCC) signed an agreement to acquire a 11.38% stake, worth 27.2 million Australian dollars, in UMC in early September, and within twenty days of the deadline for the Australian and Chinese government to approve that deal.

BHP Billiton's proposed acquisition is still waiting for approval from the relevant regulatory bodies. If the deal is given the green light, CRMCC's earlier agreement will be annulled.

This is not the first time that BHP Billiton has played the role of "bad boy" and disrupted the efforts of a Chinese state firm to take a share in an Australian mining company.

In early June, BHP Billiton successfully blocked large Chinese mining firm Chinalco's plan to invest more than 19 billion US dollars in another Australian-based mining giant, Rio Tinto. That deal would have seen Chinalco's holdings in Rio Tinto rise to 18% and also allowed the company to appoint two board members.

The October 15th issue of the Australian newspaper The Sydney Morning Herald, reported that BHP Billiton hired expensive lobbyists to persuade senior officials in the Australian Government to disrupt the Chinalco deal.

This move was seen as a strategic play. With China being BHP Billiton largest market and Rio Tinto its largest rival, the possibility of a Chinalco-Rio Tinto alliance could threaten the big mining company's iron ore sales.

Industry players highlighted the fact up until now, BHP Billiton had not been very interested in small-and-medium-sized miners, and its latest acquisition was simply aimed at keeping Chinese firms away from smaller Australian miners.

Analysts also noted that if Chinese firms were able of obtain stakes in overseas mining companies, China would be able to increase its ability to drive a hard bargain at the annual iron ore price negotiations.

In recent years, Chinese firms have begun investing in mining companies around the world. Initially, many Chinese companies lacked both the experience and the long term planning necessary to succeed in completeing these kinds of multinational M&A agreements.

Over the past few years, 43 percent of all of China's overseas mining acquisitions were aimed at Australian resources.

To be sure, the scramble for resources will be a long drawn-out battle, however the challenge for China is how to avoid more Chinese firms meeting the same fate as Chinalco or CRMCC.