Chinese increase stake in Marathon

Just what was said between SA Premier Mike Rann and former Labor Federal Senator and SA Labor heavyweight Chris Schacht (left) when they were in China together last month?

The two were part of a South Australian business delegation promoting amongst other things, sales of uranium to the Chinese.

How terribly convenient for Marathon Resources Director Chris Schacht to have the State Premier in tow before a uranium-hungry Chinese audience.

Marathon yesterday announced a 2 for 5 share issue to raise $7.7 million (ie existing shareholders can buy two shares for every five that they now own).

But how could they possibly encourage investors to put further money into a company that has been trading as low as 22 cents per share in recent times?

Obviously some expression of market confidence was required.

Enter Chen Zeng.

Chen Zeng is the Australian-based representative of the massive China International Trade and Investment Corporation (CITIC). CITIC has had a ten-year relationship with Queenslander Ken Talbot’s Macarthur Coal and last year upped its stake in the company to just under 20%, thus avoiding the need for the federal government’s Foreign Investment Review Board (FIRB) approval.

When CITIC bought into Marathon Resources, an equal purchase was made by Talbot Group Holdings Pty Ltd. A similar pattern of matching purchases was made in relation to explorer Southern Uranium early in 2007: Talbot Group and CITIC formed a joint venture to take a 17.6 per cent stake in the company.

CITIC and Talbot currently together hold approximately 20.9% of Marathon’s shares. Chen Zeng is obviously aware that investors generally have lost confidence in Marathon and would sensibly have balked at the prospect of investing more Chinese money in a sinking ship.

Yet Chen Zeng has approved a further CITIC purchase of $2 million worth of the 32 cent per share new issue, and has Talbot right alongside promising to purchase an equal amount. Thus, $4 million or just over half of the planned capital increase has been accounted for by just two major investors.

(CITIC’s share acquisition will take it above the level allowed by the FIRB without approval, but Federal Treasurer Wayne Swan’s unease about the role of Chinese sovereign wealth funds, the approval is sure to be a mere formality.)

Two million Aussie dollars is loose change for a giant like CITIC, but even so, there must be some assurances in the air about the future prospects for Marathon.

Some sort of intelligent insider guesswork?

There would need to have been, because in addition to all of the hassles surrounding the indefinite ban on further drilling of exploration holes at Mt Gee, there is also the delicate issue of SA Green’s MP Mark Parnell’s soon-to-be-introduced Bill to outlaw any mining in the Arkaroola Wilderness Sanctuary.

Did Rann give any indications to Schacht about how his government would vote on this Bill? And assuming the Bill is defeated (and that’s by no means certain), were there any discussions about how the government might make a lifting of the ban on the exploration license palatable to a generally hostile public?

In their details of the share offer, Marathon says the “Board is confident that the suspension will be lifted”.

And further, “Whilst there is a risk this new bill could be passed, the Marathon Board believes the risk to be small…”

So, if the Bill is defeated, will we hear Miner Mike Rann quoting his PIRSA inspectors to say that Marathon has successfully remediated the areas at which it had illegally buried wastes; and adding self-righteously that it has learned from its mistakes, that it is genuinely working with all stakeholders, including the Sanctuary owners and the local Adnyamathanha people and that it has committed itself to undertaking all further exploratory drilling in an ecologically sensitive manner, to world’s best practice standards; and that as a consequence, it has been decided to lift the ban on further exploratory drilling whilst closely monitoring and supervising what remains of its exploration activities; that, depending on its behaving in an acceptable manner during this time, there would be no obstacles to it submitting an Environmental Impact Statement and an application to commence mining; and that the State can only benefit from the promised returns from one of Australia’s largest undeveloped uranium deposits and blah blah blah…..

Even as I write it, I can hear the irritating sound of the Premier’s voice delivering the lines….

It’s a pity Rann is so arrogant and out of touch, and so besotted with the corporate world, and so determined to recredentialise the Labor Party as “pro-business, pro-mining, pro-growth” to the exclusion of everything else, for I fear that I might be right.

Never have I longed to be so wrong about something.