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The race for Australian resource assets

World Coal,

With coal prices still heavily subdued, it is perhaps surprising that there has been a rush of investment in Australia’s coal mining sector. Yet there has nonetheless been a recent rush of takeovers of Australian mining resources by their Chinese shareholders, as well as heavy investment from Indian companies.

New mines are on the cards for Queensland, including what will be Australia's largest coal mine.

Indian conglomerate, Adani Group, is waiting on Federal Government approval to open a AU$ 16 billion coal mine near Clermont.

At the same time, ASX listed company, Cuesta Coal, is forging ahead with plans to develop their Moorlands open cut mine in the Bowen Basin after signing a AU$ 15 million deal with a Chinese-based investment company.

Further, in the past two weeks, Chinese steel giant, Baosteel, has joined forces with local rail haulage provider Aurizon to offer AU$ 1.42 billion for Perth coal and iron ore player, Aquila Resources, and Guangdong Rising Asset Management has put AU$ 1.46 billion on the table for copper miner PanAust.

In both cases the bidders were existing major shareholders in the targets.

China Merchant's winning bid AU$ 1.75 billion bid in a consortium with Hastings for Port of Newcastle was as much a resources play as an infrastructure play. Meanwhile, an AU$ 178 million tilt by China's Landbridge Energy for ASX-listed coal seam gas player, WestSide, turned hostile this month.

The recent charge of investment has been driven by a desire to take control of strategic assets, from mines to ports, according to industry analysts.

"A lot of mining investment from overseas in Australia is strategic," says industry expert Peter Wright. “What we all too often forget, as Australians with a resource perspective, is that other countries aren't endowed with the mineral bodies we have.”

Wright posits that companies from overseas are positioning themselves to take advantage of Australian resources and provide their domestic markets with a guaranteed supply of coal and other resource long into the future.

Chinese leadership change marks shift in tactics

Australia is currently China’s third-largest investment destination.

Industry players say a shift in attitude to investment from the once-in-a-decade change to Chinese leadership is seeing state-owned enterprises (SOEs) with major shareholdings in Australian resources companies take a more pro-active approach to their investments.

With commodity prices in the doldrums – particularly coal and iron ore – and equity market valuations depressed for many miners, these SOEs see it as an opportune time to launch takeovers.

The head of PwC's Asian deals desk, Andrew Parker, said there was a "discernable" change of attitude to investment in Australian resources companies, driven in part by the change in Chinese leadership.

"There were a series of investments, made under the last leadership, that haven't gone as well as China would have liked," he said. "What we are seeing now from our businesses' point of view is a resurgence in Chinese interest in the past six or eight weeks. They are the early signs that the (Chinese leadership) transition has been bedded down and now companies are out, actively looking for those investment opportunities."

For China, 2013 was largely a year of rebalancing the domestic economy, and now demand had returned, one investment banker told Reuters.

The shift in attitude is now being presented as a great opportunity for Australia to capture as much Chinese investment as it can.

China has said it will invest US$ 500 billion over the next 5 years – or an annual rate of about US$ 100 billion, up significantly on the roughly US$50 billion rate

Duncan Calder, who is head of the Australia China Business Council and a mining specialist at KPMG, noted Australia needed to be competitive given there was "an increasing war globally to access Chinese capital".

"Chinese companies do seem to be offering premiums, they aren't just bottom feeding and looking to do cheap deals," Mr Calder said.

A common misconception is that SOEs act in unison as "China Inc" but the reality is they are just as competitive with other Chinese companies as with their international competitors, industry sources stressed.

Edited by Sam Dodson

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