Jerome Favre/BloombergAndrew Michelmore, chief executive officer of Minmetals Resources Ltd.Andrew Michelmore, the Rhodes Scholar who plotted China’s biggest metals takeover bid, said Beijing isn’t calling the shots when it comes to buying commodities for the world’s fastest-growing major economy.
Michelmore, a 58-year-old Australian, joined China’s commodity drive in June 2009 after he sold most of the mines he ran at Melbourne-based OZ Minerals Ltd. to China Minmetals Group, the nation’s biggest state-owned metals trader. He’s now the most senior foreigner working at a state-owned listed mining company after joining Hong Kong-based Minmetals Resources Ltd., following almost three decades in mining with former employers including Russian billionaire Oleg Deripaska.
“The myth is that the government goes to company X and says, ‘Company X I want you to go and buy that asset over there and pay whatever you want for it because we want it,’” said Michelmore, who won a gold medal at the 1974 World Rowing Championships. “Not at all,” he said in an interview in Hong Kong. “There is this incredible competition in China, they are businesspeople competing against each other.”
Michelmore’s version of China Inc. contrasts with that of some global regulators and foreign politicians who’ve helped stymie at least $40 billion of planned overseas resources deals on concern the government’s control raises national security issues. Undeterred, the former president of the Oxford University Boat Club said he’s planning further takeovers after his C$6.04 billion ($6.3 billion) offer in April for Equinox Minerals Ltd. was trumped by Barrick Gold Corp.
Minmetals Resources rose 0.7 percent to HK$5.78 at the end of trading in Hong Kong. The shares have gained 7.2 percent this year, compared with a 1.2 percent decline in the Hang Seng index.
“With Equinox, we identified that we were interested early last year, so we actually went and bought a stake,” said Michelmore, who attended the 150-year old Melbourne Grammar School, which has produced three Australian Prime Ministers. “We want to grow out there and we want to invest in assets outside China, but it’s not a grab for resources. It’s not a creeping takeover of the international arena.”
Equinox is contracted to sell most of its copper concentrate from its Lumwana mine in Zambia to Indian and Chinese smelters, and Michelmore, a trained chemical engineer, has said Minmetals Resources, which owns the world’s second- biggest zinc mine, would have honored those contracts. “In fact, 90 percent of what we produce at the moment doesn’t go for sale in China,” he said. “Anything we do sell in China is done on arm’s length contracts.”
In another sign of China’s growing mergers and acquisitions maturity, state-controlled PetroChina Co., Asia’s largest energy producer, walked away last month from what would have been its biggest overseas acquisition, the C$5.4 billion purchase of natural-gas assets in Canada, after failing to agree on price.
Five years ago, China’s leadership decreed that certain “pillar” industries, including automaking, telecommunications, mines, energy production and steel manufacturing, should be dominated by companies under government control. The policy has helped inspire a school of thought called the Beijing Consensus, which holds that state-directed capitalism can help developing nations avoid the financial upheavals associated with free markets.
While companies in China will identify a possible acquisition, final approval rests with the National Development and Reform Commission, the nation’s top economic planning agency, Michelmore said. The agency said in June 2009 that China will strengthen oversight of overseas investments as it encourages companies to step up ventures abroad.
“Most decisions by companies are probably free of government interference, but those that involve national welfare, defined very broadly, will be subject to oversight by government and intervention if necessary,” said Shanghai-born Vic Edwards, senior lecturer in banking and finance at the Australian School of Business, in Sydney.
Michelmore, who sold WMC Resources Ltd. to BHP Billiton Ltd. for $9.2 billion in 2005, named North America and Africa as potential target areas for possible bids. After the BHP takeover, he worked as CEO of En+ Group Ltd., the holding company of the energy, power and aluminum assets of Deripaska until 2007. He took most of his executive team with him when he sold most of the OZ Minerals assets to Minmetals.
The Chinese and Russians do business differently, Michelmore said. With Minmetals “for me it’s working with building blocks of concrete, whereas when I worked in Russia it was built on sand,” he said.
Chinese companies have been forced to reset their global acquisition agenda after a series of takeover failures in the past decade, including SAIC Motor Corp.’s decision to acquire control of South Korea’s Sangyong Motor Co., Peter Williamson and Anand Raman said in April in the Harvard Business Review. They have shifted to buying physical assets and technology instead of global brands or sales networks, they said.
China Inc. is like a large, diversified corporation with divisions and subsidiaries competing for capital and resources, Williamson, a professor at the University of Cambridge’s Judge Business School, said in an e-mail. “There is no ‘grand plan,’” he said. “Rather each individual company is driven by its own strategy for competitiveness and agenda. The central government then encourages each company to look at deals quite autonomously.”
China Inc. didn’t deliver when the nation failed to dominate talks for annual iron ore contracts after taking the reins from Japanese mills last decade, said Philip Kirchlechner, a director at the University of Western Australia’s Confucius Institute, who headed Rio Tinto Group’s Hamersley Iron office in Shanghai from 1996 to 2001. “It’s a perfect example where China Inc. didn’t work at all” and led to the demise of the benchmark pricing system, he said.
“People treat it as China Inc.,” Michelmore said. “I’ve worked in the 80s and dealt with Japan Inc. Japan Inc. is Japan Inc. You’d have a meeting with one large corporation and by the end of the week every one of the large corporations has the minutes of those meetings. That doesn’t happen in China.”
