Mysterious Chinese deal highlights FIRB secrecy

by Michael West | Jun 5, 2012 | Business

It is hard to tell exactly when the deal was done, but a group of Chinese businessmen has quietly put their collective foot on a block of land half the size of the Australian Capital Territory.

They did this by taking over a struggling company on the Australian Stock Exchange called A1 Minerals. They paid no takeover premium for control of A1 and they are now sitting on 1200 square kilometres of land via a company called Stone Resources which is domiciled in Bermuda.

We are not talking prime CBD real estate here. It’s gold exploration acreage near Laverton in Western Australia’s Yilgarn Craton. But there is a lot of it – and it begs the question: is anybody keeping tabs on the Chinese and other foreign interests’ land-banking activities in Australia?

Strangely, there has not been a single mention of the word ‘FIRB’ in the already scant documentation about the A1 deal. FIRB is the acronym for the arm of federal treasury whose job it is to approve foreign acquisitions, the Foreign Investment Review Board.

As far as federal agencies go, FIRB is a secretive mob. If you venture into the CIA website you will find all manner of interesting things about America and the world.

A visit to the FIRB website however will reveal little more than a few guidance notes and application forms, and a dry policy document or two. It sits within the federal treasury department but keeps an extraordinarily low profile and accounts for none of its decisions publicly.

So how did this deal get done? It may well have passed completely unnoticed had it not been for a geologist and industrial chemist, Ian Crawford, who has offices in the Laverton district. Crawford noticed that A1 had changed hands.

“We asked the ASX about FIRB approval for the Chinese takeover of A1, only to be told by the ASX that the shareholders approved the takeover and to take our concerns to the FIRB,” Crawford told Business-Day.

He did just that. Twice. “And to the Treasurer, Wayne Swan, as FIRB comes under treasury. Nothing but the sounds of silence.”

As a geologist in the outback, Ian Crawford sees a lot of “land-banking” going on. Companies can get control of large tracts of land with exploration and minerals licences and sit on the land for years.

There is no suggestion that Stone Resources does not intend to use its leases for exploration in accordance with the laws but there appears to be a lack of oversight of foreign investment. In the case of Stone it is a group of Chinese businessmen based in Hong Kong via an entity registered in the tax haven of Bermuda.

“Why can’t anyone answer my simple question – how did a wholly Chinese-owned business get to own more than 1200 square kilometres of prized ground without full FIRB investigation?”

A look through Stone’s statutory announcements doesn’t make the picture much clearer either.

On March 12 this year, A1 Minerals told the stock exchange it had “become aware that three major shareholders of Stone Resources Ltd”, including one of its directors, had struck a deal with Superb Summit International Timber Company Limited “to exchange their combined controlling stake in Stone for certain shares or convertible notes to be issued by Superb Summit”.

Superb Summit is a Kong Kong-listed company domiciled in the Cayman Islands and Stone Resources a Bermudan-domiciled company listed on Canada’s Toronto Stock Exchange whose Chinese shareholders include exotic names likes Tycoon Rich Holdings Ltd.

It’s all very mysterious and probably just a case of some Chinese trying to make a dollar by exploring for gold in WA.

They paid around $12 million and effectively extinguished A1’s debt to Queensland property developer Watpac.

That $12 million in takeover value – bear in mind the shares are quoted around 0.01c – is a tiny deal by ASX standards and it probably comes in well below the FIRB threshold for approvals.

The threshold is $244 million for the acquisition of an Australian company by a non-US entity, or, as the FIRB website says, “an interest in an offshore company that holds Australian assets or conducts a business in Australia”.

But who would know? Was there approval required or sought? Did ASX or ASIC have to report foreign acquisitions to FIRB? How many approvals has FIRB given for Chinese interests to buy Australian companies? What is the land area in Australia now controlled by Chinese interests? Has any register been made at all?

FIRB has been unable to respond to questions from BusinessDay. The agency doesn’t even seem particularly accountable to the Senate. Nobody from FIRB turned up at Senate Estimates last week for the usual questioning. They just sent Treasury people.

An interesting aside in the Stone Resources saga is that the Chinese deal appears to have saved the skin of Watpac, the civil engineering group which lately moved into mining services. A1 had a debt to Watpac which was not too far short of Watpac’s full year profit last year.

Had the Chinese not come along, Watpac might have been in strife. It has a processing plant which struggles to make money. Stone is now tolling for Nex, lugging dirt nearly 200 kilometres from Kookynie, dirt with head grades barely 1.8 grams to the tonne. So there is work to be done before the Chinese get a return.

There is also work to be done at FIRB – on transparency.

Stone Resources said FIRB approval for the transaction was granted on July 4, 2011.

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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