Feb. 16 (Bloomberg) -- China agreed to buy Australia’s debt- laden OZ Minerals Ltd. for A$2.6 billion ($1.7 billion), gaining copper, zinc and gold mines in Asia less than a week after acquiring assets from Rio Tinto Group.

State-owned China Minmetals Corp. will pay 82.5 cents for each share of OZ Minerals, 50 percent more than the last traded price on Nov. 27, the Melbourne-based company said today in a statement. The offer is recommended by the board of OZ Minerals, the world’s second-largest zinc mining company that is refinancing A$1.2 billion of debt.

China is seeking to take advantage of the rout in commodity prices to lock in resources worldwide by targeting debt-laden mining companies in need of funding. Aluminum Corp. of China, controlled by the nation’s State Council, last week agreed to a $19.5 billion investment in London-based Rio.

“China is making strategic investments overseas at a comparatively lower cost,” said Xu Minle, a Shanghai-based analyst at BOC International Ltd. “Australia also needs support from China, the biggest buyer, to secure demand for its mineral resources.”

OZ Minerals’ market value has slumped about A$6 billion since being formed in July. The company had its shares suspended from trading on Dec. 1 as it sought extensions to refinance debt. The stock last traded at 55 cents. The shares will resume trading tomorrow on the Australian stock exchange.

‘This or Bust’

“China is trying to underwrite its raw-material needs and prevent further consolidation and a shift in pricing power away from them,” said Ric Ronge, who helps manage the equivalent of $1 billion at Pengana Capital in Melbourne. “It is a great deal for OZ Minerals shareholders because it is either this or bust.”

Aluminum Corp., known as Chinalco, on Feb. 12 said it will buy $7.2 billion of Rio’s convertible bonds and acquire stakes in projects for $12.3 billion in Chile, Australia and the U.S. The transaction is China’s largest single overseas acquisition.

Chinese companies offered at least $18 billion last year to buy mining assets globally, taking advantage of the financial crisis. Sinosteel Corp., China’s second-largest iron-ore trader, acquired Australia’s Midwest Corp. last year for A$1.36 billion.

Beijing-based Minmetals, a Fortune Global 500 company, agreed to repay all OZ Minerals’ outstanding debt should it get 100 percent ownership, the Australian company said. The transaction needs the approval of OZ Minerals’ bankers and Australia’s Foreign Investment Review Board, it said.

Edge of Recession

“This places further pressure on the Australian Treasurer, Wayne Swan, following Rio Tinto’s Chinalco tie-up and at a time when the economy is on the verge of recession and China Inc. is the only source of capital to keep Australian mines open and workers employed,” Michael Rawlinson, head of mining and energy at London-based Liberum Capital Ltd., wrote today in a report.

OZ Minerals is being advised by Goldman Sachs JBWere Pty and Caliburn Partnership. UBS AG is advising Minmetals.

“OZ Minerals has been working with its financiers and progressing various funding options to pay down debt and maximize value for shareholders while providing greater certainty to employees and suppliers,” Chief Executive Officer Andrew Michelmore said today in the statement. “This offer can resolve investor uncertainty.”

The company, Australia’s third-largest diversified miner, said it’s continuing talks to sell the Martabe project in Indonesia and Golden Grove mine in Australia to provide short- term funding requirements. “Minmetals’ price will increase if the aggregate net sale proceeds received for those assets exceeds A$425 million,” OZ Minerals said.

Sole Bidder

The two companies started talks in December and there were no other takeover offers for the company, Michelmore said today on a conference call with reporters.

Minmetals said last September it was in talks to buy a stake in a mine in Chile from Codelco, the world’s biggest copper producer. The company, founded in 1950, last week said pretax profit rose to about $1 billion as it increased production and sales.

OZ Minerals operates the Century and Rosebery zinc and lead mines in Australia, the Sepon copper and gold project in Laos and the Golden Grove copper, zinc and gold project in Western Australia state. It also owns the Prominent Hill copper and gold mine in South Australia, the Avebury nickel mine in Tasmania and the Martabe project.

“Minmetals intends to continue to operate OZ Minerals’ portfolio of assets,” Minmetals Chairman Zhou Zhongshu said in the statement.

Minmetals will fund the takeover through cash and has received approval for a long-term credit facility, OZ Minerals said.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net.

Last Updated: February 16, 2009 05:05 EST