Two Chinese customers--APAC Resources Ltd. (1104.HK) and Fushan
International Energy Group Ltd. (0639.HK)-- took effective control
of Australia's fourth-largest iron ore producer Wednesday, in a
shareholder rights battle that crystallizes Australian concerns
about the power and intentions of Chinese investors in the
country's resource sector.
Shareholders of Mount Gibson Iron Ltd. (MGX.AU) went against
retiring chairman Ian Hamilton and voted down the re-appointment of
one of the company's non-executive directors, in a move which
leaves directors linked to APAC and Fushan, among the company's
biggest customers, holding a majority of board seats.
At the company's annual general meeting in Perth Wednesday,
shareholders voted against the re-appointment of Peter Knowles, a
former Wesfarmers Ltd. (WES.AU) executive whose re-election was
recommended to shareholders in Hamilton's address to the
meeting.
Lee Seng Hui, a non-executive director of APAC Resources Ltd.
(1104.HK), which owns 25.85% of Mount Gibson, was reappointed as
non-executive Wednesday. With Hamilton and Knowles gone, that
leaves seven directors in the board of Mount Gibson. The vote
Wednesday effectively gives control of the company's board to
shareholders APAC, a Hong Kong-based commodities trader, and Fushan
International Energy, which owns 14.24%.
People close to Mount Gibson argue the companies regularly
operate in tandem with their own majority shareholders, although
APAC denies this. APAC's majority shareholder is COL Capital and
Shougang Concord International Enterprises Co. Ltd. (0697.HK), a
division of one of China's largest steelmakers, is Fushan's.
It is a situation that is "very disappointing for the company
and all stakeholders", Hamilton said.
"I believe it preferable and in the best interests of the
company to avoid a situation where major shareholders who are also
significant customers of the company are in control of the
board.
"I also regard it as important that institutional and other
investors in the company are able to rely on the fact that the
board is controlled by a majority of directors who are independent
of significant customers of the company. If the situation develops
to a point where this is not the case I believe it is likely to
have a negative effect on the value of shares in the company."
Hamilton last week announced he would stand down from the
nine-person board due to concerns about its independence. Hamilton
Wednesday told reporters that all votes cast against Knowles where
made by APAC, with Fushan abstaining most of its vote.
China consumes around two-thirds of the world's sea-borne iron
ore and is keen to diversify its sources of material away from Vale
S.A. (VALE) Rio Tinto PLC (RIO) and BHP Billiton Ltd. (BHP), which
collectively control around the same proportion of supply.
However, some Australian resource companies have grown
suspicious of attempts by Chinese steelmakers to take positions in
the country's mining sector, due to fears that they are more
interested in their own security of supply than running profitable
businesses.
In recent weeks a consortium of Chinese steelmakers sparred with
Xstrata PLC (XTA.LN) over its ultimately successful bid for control
of Mauritania-focused magnetite producer Sphere Minerals Ltd.
(SPH.AU).
Australian analysts also believe Chinese steelmaking interests
are behind a A$930.6 million bid last week by Wah Nam International
Holdings Ltd. (0159.HK), a Hong Kong investment company which earns
most of its revenues from operating limousine services, to take
over iron ore developers Brockman Resources Ltd. (BRM.AU) and
Ferraus Ltd. (FRS.AU).
Trading in Mount Gibson was halted shortly after the vote
Wednesday, after its shares fell 7.8%, or 17 Australian cents, to
A$2.01 during the day.
In a statement released after the meeting Wednesday, APAC said
the move would not affect its relationship with the miner. "APAC
has not, and will not, seek special treatment from Mt Gibson.
Evidence for this is the signing this month of new, arms-length
iron ore sales agreements between APAC and Mt Gibson," APAC
said.
APAC said claims it was acting together with other Mount Gibson
shareholders or with Shougang were "false and misleading".
Fushan was not immediately available for comment.
In his speech, Hamilton said that he had agreed with the two
shareholders to slim down the company's nine-member board to seven
members, but that APAC and Fushan had refused to confirm whether
they would sacrifice one of four directors which Hamilton and the
company's Australian directors consider aligned with the Chinese
shareholders.
Hamilton will be replaced as chairman by non-executive director
Craig Readhead, who Hamilton said won't be happy with the
composition of the board.
Chief Executive Luke Tonkin may also be disappointed and there
is a risk that he could leave the company, Hamilton said
Wednesday.
"Luke won't abandon the company but if this situation is not
fixed, that is a risk, and that is a severe shareholder value
risk."
He said it's still open to APAC and Fushan to reduce their
number of board seats by one, although he added this would be "a
challenge".
"I live in hope that perhaps what we've seen is people flexing
muscle, making sure that they're not going to be pushed around," he
said.
Tonkin said that he would continue to work for the company, but
would find his position "difficult" if the board issue was not
resolved.
APAC and Fushan took stakes in Mount Gibson in 2009 after
several of its major customers defaulted on shipments during the
global financial crisis.
-By David Fickling and Ross Kelly, Dow Jones Newswires; +61 2
8272 4689; david.fickling@dowjones.com
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