Investors cheer Chinese takeover of Felix

[August 14, 2009]  SYDNEY (AP) -- Investors on Friday firmly endorsed an Australian dollars 3.5 billion ($3 billion) plan for Yanzhou Coal to buy Felix Resources Ltd. in what would be China's biggest investment yet in the Australian minerals sector.

Felix shares surged almost 6 percent on the Australian Securities Exchange after a trading halt was lifted following the announcement of Yanzhou's offer, before falling back to close 4.6 percent higher at A$17.67.

Yanzhou Coal was up 2.3 percent at 12.40 Hong Kong dollars ($1.60) per share in mid-afternoon trading on the Hong Kong stock exchange. It also has shares traded in Shanghai and New York.

Yanzhou's offer amounts to A$18-per-share -- comprising A$16.95 in cash, a A$1 dividend and a stake in a subsidiary that is being spun off as part of the deal.

It is the latest bid by a Chinese state-owned company to buy a chunk of Australia's huge supply of raw materials and thereby another piece of the production chain for products such as steel that are in high demand in fast-growing China.

The path for such deals has proved rocky, with some political opposition to investment by state-owned Chinese companies and other problems.

Felix's board recommended the offer to shareholders on Thursday. The deal also requires the approval of foreign investment regulators and the Australian government.

"The Yanzhou offer allows shareholders to benefit from the certainty of cash consideration which fully values Felix, without taking on the risks associated with Felix's next phase of growth," Felix Chairman Travers Duncan said in a statement.

If successful, the deal would be the largest investment by a Chinese company in Australia's natural resources sector, according to financial information firm Dealogic.

Chinese state-owned companies have made several attempts recently to buy big stakes in Australia, with mixed results.

Debt-laden Rio Tinto in June abandoned a $19.5 billion bid from China's Chinalco to increase its stake in the Anglo-Australian miner to 18 percent, a deal that met investor resistance and opposition from some politicians who said it was against Australia's national interest.

Minmetals Nonferrous Metals Co. had to amend it's bid for Oz Minerals after the government said the Chinese company could not buy a mine that is located inside an Australian military area. The amended deal, worth A$1.7 billion, was approved by shareholders in June.

Also, the arrest of four Rio Tinto workers in China on charges of stealing commercial secrets has added to jitters about ties between Australian and Chinese companies.

Felix has existing coal mines and exploration projects in Australia's New South Wales and Queensland states. It produces thermal coal used in power generation and metallurgical coal used in steelmaking.

Under the deal, Yanzhou would retain Felix's existing employees and management.

[Associated Press; By ROHAN SULLIVAN]

AP Business Writer Joe McDonald contributed to this report from Beijing.

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