China’s Chengdu Tianqi Industry Group Co. is likely to win Australian regulatory approval for its C$673 million ($675 million) bid for Talison Lithium Ltd. because the buyer isn’t state-controlled, according to two academics who have studied rulings on Chinese investment.
Chengdu Tianqi will be treated as a private investor under Foreign Investment Review Board assessment criteria, making an approval likely, Vic Edwards, visiting fellow at the University of New South Wales’ Australian School of Business, said today in an e-mail.
“There is a strong case that FIRB should approve the Tianqi takeover offer and that it is in the national interest according to review measures currently known and used,” said Edwards, who was part of an industry panel that looked at the regulator’s 2009 decision to block state-owned China Non-Ferrous Metal Mining (Group) Co. from taking control of rare earths developer Lynas Corp.
Australia unveiled a “plain-English” version of its foreign investment review policy in January after concerns were raised over planned investments by state-owned groups in companies including Lynas, Rio Tinto Group and Murchison Metal Ltd. The board’s website says investments by state-linked group face greater scrutiny than other overseas groups.
The ruling on Murchison “doesn’t necessarily go in the same direction” as a decision on Chengdu Tianqi would, said Peter Drysdale, emeritus professor of economics in the Crawford School of Economics and Government at the Australian National University. He authored “Chinese Foreign Direct Investment in Australia: Policy Issues for the Resource Sector,” which was published in 2009 in the China Economic Journal.
Chengdu, Sichuan Province-based Chengdu Tianqi, which buys 90 percent of its lithium needs from Talison, yesterday made an unsolicited C$7.15-a-share bid for the 85 percent of Talison it doesn’t already control, exceeding Princeton, New Jersey-based Rockwood Holdings Inc.’s August offer for the owner of the world’s biggest lithium mine by 10 percent.
“Tianqi would be seen as securing its business future, supply and security by buying a majority interest in Talison,” said Edwards. “It may be considered a case in vertical integration.”
Rockwood said today in a statement that its C$6.50-a-share bid for Talison was approved by the regulator.
“Rockwood has no intention of engaging in a bidding process for the acquisition of Talison,” Rockwood Chairman and Chief Executive Officer Seifi Ghasemi said in the statement.
Talison, based in Perth and listed in Canada, operates the Greenbushes lithium mine, which is about 250 kilometers (155 miles) south of Perth. Greenbushes is the largest open-pit lithium mine, with the highest grade ore in the world, according to Jonathan Lee, an analyst at Toronto-based Byron Capital Markets Ltd.
Chengdu Tianqi, founded in 1997 and with producing assets in Canada and the Netherlands as well as China, said it has Chinese government approvals for the deal and isn’t aware of any reason why it wouldn’t get the go-ahead from Australia under its Foreign Acquisitions and Takeovers Act. Chengdu Tianqi is the world’s largest producer of lithium chemicals from ore, according to its website.
The Australian regulator would probably approve a takeover on the condition the Chinese parent agrees to do marketing of its lithium concentrate product on an “arm’s length” basis to ensure it’s sold at prevailing market prices, said Drysdale.
Drysdale studied the regulator’s ruling on blocking China Minmetals Corp. from buying some OZ Minerals Ltd. assets and another preventing Sinosteel Corp. from gaining control of Murchison Metals, an iron-ore developer in Western Australia.
The regulator “needs to consider whether Tianqi’s successful bid will lessen competition both domestically and globally and whether its vertical integration also provides it with some monopolistic elements,” Edwards said.
Lithium is used in batteries for iPads, laptop computers and electric cars. Global demand is projected to double by 2020 as the electric-vehicle and energy-storage markets expand, according to analysts at Dahlman Rose & Co. Talison, Rockwood, Philadelphia-based FMC Corp. and Chile’s Soc. Quimica & Minera de Chile SA control about 90 percent of lithium production, analysts at Jefferies & Co. said in a June report.