Facing distress, miners eye China "white knights"

HONG KONG - In metals and mining, Chinese companies are seen today as much as saviors in a time of distress as cash-rich buyers of natural resources.

Not long ago, the industry saw China more as a willing investor, ready with cash to buy minor stakes in companies and their mines ... but the image has shifted more to 'white knight' than 'strategic partner'.

A Chinese firm this week offered to buy control of struggling Australian zinc miner Perilya, and the Chinese are also pursuing another zinc miner, Oz Minerals, which is scrambling to refinance its debt. And mining giant Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz)(RIO.L: Quote, Profile, Research, Stock Buzz), saddled with around $30 billion in debt, is trying to find buyers for some of its assets.

All eyes are on China.

Few companies will admit to being in distress, but for mining groups across the globe, the environment looks increasingly tough. Commodity prices have slumped, costs are rising and revenues falling. Enter cashed-up, government sponsored Chinese companies that appear ready to take more control.

"It's a nice marriage between cash-strapped, mid-cap resource firms and cash-rich, state backed Chinese firms -- it's real good timing," said Larry Grace, analyst at Kim Eng Securities.

"The number of these deals in 2009 will depend on how many of them foreign governments will allow."

A 'white knight' typically rescues a company from distress, a bad deal, an agitating shareholder, or all three.

There are plenty of obstacles, however, that could prevent China from being miners' distressed asset buyer of choice.

For one, China has indicated that, while it's interested in investing abroad, it's happy to be patient in the current environment.

Chinese mining and steel companies are also feeling the economic pinch, though a state-run company has government cash if needed.

Also, any Chinese tie-up carries political baggage.

Australia has long worried that a Chinese foothold in the resource-rich country will result in wages being slashed, and there are concerns that Chinese-controlled mines would lower prices in order to sell their output more cheaply to Chinese state-owned customers.

In 2005, U.S. politicians thwarted CNOOC's (0883.HK: Quote, Profile, Research, Stock Buzz) (CEO.N: Quote, Profile, Research, Stock Buzz) acquisition of California-based Unocal.

But politics can take a back seat if a company is on the brink of collapse.

(Reuters)