China Minmetals Corporation - Case Study
In June 2009, Chinese state-owned enterprise China Minmetals Corporation (CMC) acquired the majority of assets of Australian mining company, OZ Minerals, and formed Minerals and Metals Group.
In December 2010, Minerals and Metals Group was acquired by Minmetals Resources Limited (MMR) a subsidiary of CMC that was listed on the Hong Kong Stock Exchange. In September 2012, the company changed its company name from MMR to MMG Limited (MMG).
The acquisition in 2009 wasn’t the first time a Chinese state-owned enterprise had invested in Australia, but it was unusual in how successful the move turned out to be. This was due to the innovative approach taken to the deal, which saw CMC buying not just MMG’s physical assets and resources, but also its talent and brand.
Key learnings
- Look for innovative ways of partnering with Chinese entities: Many Chinese firms have bought into Australian companies, then failed. CMC didn’t only buy MMG’s assets, but also its expertise – an innovative approach that has paid off.
- Know how to deal with the Foreign Investment Review Board (FIRB): Be well prepared for early engagement and a rigorous process with FIRB. Companies need to be considered and accommodating in their dealings with the board to ensure success.
- Invest in cultural awareness training for Australian employees: Understanding and acknowledging the cultural differences in Australian and Chinese business practice is vital.
- Long term partnership with our major shareholder: Building mutual trust can be an ongoing process, but it is essential for an enterprise of this kind.
- Take advantage of local expertise and passion: While expatriate employees can be helpful in embedding company culture in a new market, local employees have a vested interest in seeing a project succeed.
CMC broke the mould in how they established the structure of the new subsidiary, creating an English-speaking board and representatives from both MMG and CMC to maximise expertise and transparency. This approach has led to outstanding results, seeing MMG’s enterprise value rise from $1.3 billion at acquisition to $14 billion today. In addition to performing well financially, the partnership has become a model for other Chinese companies seeking to invest in Australia. MMG has become a unique investment and management model, headquartered in Australia, with the strong support of a major Chinese state-owned resources corporation. In nine years, MMG has established new operations in the DRC
Look for innovative ways of partnering with Chinese entities
When CMC asked Andrew Michelmore to stay on as CEO after the acquisition; he thought it was just a sweetener for the deal and that he would be out of a job shortly after the papers were signed. “Nine years later, I’m still here!” he said. The parent company had been true to their word and recognised the value of leadership that understands the market and the business.
This commitment to business continuity has continued following Andrew’s decision to retire in 2017. He has remained on in the organisation for six months to allow for an effective CEO transition to Jerry (Jian) Jiao, who has been on the MMG Board since 2010 and Chairman since 2014.
CMC’s strategy of investing in Australian expertise as well as assets was previously unheard of in China. Most of the firms that had bought into Australian entities were large, all- powerful companies that were used to doing what they wanted in China. CMC’s approach was far more collaborative. “They dared to be different,” says Andrew.
He says it helped that many senior CMC people had worked overseas. “This group actually had some offshore experience and realised it was different, so their strategy was not to just go and buy some assets and bring them back but to actually go and buy assets with a management team that they had watched and felt they respected.”
Unlike in many other Chinese-Australian ventures, the company was set up so that the management team, headed by Andrew, would report to a diverse Board of independent, non-executive and executive directors, upon listing on the Hong Kong Stock Exchange, an international management and operational team. It was agreed board meetings would be held in English. “We would put forward the strategy, business plan, budget, the board would sign off on it, and I would be left to get on and run the business,” Andrew says.
This unique partnership has allowed each side to learn from the other, despite considerable cultural differences.
For example, in 2011, Andrew’s team recommended the company withdraw from bidding for Equinox Minerals Limited. Traditionally, in China, failing to complete on a bid may be seen as a loss of face, and damaging to reputation. But then CMC Chairman, Zhongshu Zhou, recognised that to have completed the deal and destroyed shareholder value would have been worse. This ability to learn has increased CMC’s standing in China, with the company now seen as a leader in business reform.
Know how to deal with the Foreign Investment Review Board
While many advisors claim dealing with FIRB is difficult, it needn’t be, says Andrew.
FIRB did ask a lot of detailed, probing questions, but only to ensure all options had been considered by OZ Minerals before selling to CMC. In the end, and despite an initial rejection, approval was secured quickly, thanks to a mutual nimble, flexible and accommodating approach.
Now, whenever FIRB approval is needed, he says, the company keeps FIRB updated and the business seeks to engage early regarding its plans. And crucially, they recognise that openness, transparency and responsiveness are key. “We never go into the public arena and play politics,” he says. “On the international relations side it’s business to business, government to government, people to people, and that is essential for success.”
Invest in cultural awareness training for Australian employees
Once the deal was signed, MMG engaged Chinese cultural intelligence trainers to run cultural awareness programs for employees. While a number of MMG executives had previously worked in Asia, and had broad understanding of business etiquette in the region, many others had not. The training helped them understand how business relationships are forged in China, and the practicalities of working with major shareholders.
“We looked at understanding what the commonalities were in the cultures and recognising and respecting the differences,” says Andrew.
“I didn’t realise at the time what an impact that had in China. They [CMC] were impressed that we had taken the effort to undertake cultural intelligence training. It was a very strong message that we made the effort to understand their culture.”
Take the time to build trust
For Andrew, building all-important trust with Chinese counterparts is a three-stage process that can take time. “The first stage for a lot of companies doing business in China is one way: you sell, they buy. In the next phase they get to know you and trust the business and want to invest. The third is where, as the relationship and trust becomes stronger, you start to do things jointly,” he says.
“People think you can just jump in and do that on day one but it doesn’t work that way. You have to have resilience, credibility and understanding.”
Having established trust with their Chinese counterparts, Andrew and his team found it far easier to have open conversations with them about how issues should be handled. This meant decisions could be made that reassured the Australian side that appropriate action was being taken, but that didn’t cause any loss of face for the Chinese team. “In Australia you have robust conversations, while in China, you have respect for authority and hierarchy. In some instances, even if people think something is wrong they would never raise it. In our boardroom we have those robust discussions,” says Andrew.
Also important is a general willingness to compromise, which makes it easier to stay firm when a non-negotiable issue arises. And think carefully about how you put forward proposals, he says. “Make sure there are no surprises. Keep the dialogue open. Don’t put it to an ultimatum.”
Take advantage of local expertise and passion:
It is part of MMG’s model to use largely local employees, wherever they are operating. On their projects in Laos and the Democratic Republic of Congo, for example, more than 98 per cent of the employees are from the local area.
While it’s common for Australian firms to send expatriates on overseas projects, an approach that is useful for introducing local employees about the company’s values, Andrew says it’s better to engage locals in the long run.
“You can have expats there running the place, but ultimately your best performance comes when the local people run it because they understand how things work there, but they also have pride and want to be successful. Importantly, they understand the local political culture,” he says.
MMG offers secondments to China Minmetals employees who come to Australia and learn the business and the culture, then move on to roles where they can share their knowledge with others. “They work in the team, it’s a real job and they get to know the people,” says Andrew. Many of those seconded go on to take more senior roles within CMC.
CMC has seized the opportunity for their Chinese employees to learn from MMG. “They saw us as a window into best practice in mining in the West, particularly in sustainability, safety, environment, community practices,” says Andrew.
A successful partnership
For Andrew, the success of this acquisition has been far greater than the financial returns. He says it’s been good for international relations, with senior politicians recognising the benefits of the close working relationship between the Australian and Chinese entities.
It has helped to inject capital investment and tax revenue into the Australian
economy and created employment and growth in related industries, from financial and professional services to construction. There have also been benefits for Indigenous communities, where MMG has contributed through Indigenous training and employment at its former Century and Golden Grove sites, and at its current Dugald River project in Queensland.
Crucially, the MMG model is helping to dispel myths and assumptions that make the Australian public sceptical of foreign investment. “A lot of that is driven by misinformation,” says Andrew. “It’s so important to explain the logic behind any transaction or investment, and if people understand the shared benefits your stakeholders will be more supportive.
“In the same way that UK/US and then Japanese foreign direct investment shaped Australia, Chinese direct investment can drive Australian growth, provide Australian job opportunities and deliver benefits to everyone.”
A successful partnership - from China Minmetals perspective
Jerry Jiao, currently the CEO of MMG, joined China Minmetals in 1992, and after managing a portfolio in China including base metals from mining, smelting and processing, formed jointly with his colleagues, the idea of establishing an international platform for CMC.
“Together with Andrew and the management team we developed the strategy for MMG back in 2009. Being part of MMG since the beginning presents me with a unique opportunity to understand where we came from and how we developed our strategy, culture and values. From the very beginning, we tried to do something unique, we tried to bridge the international mining expertise
and China’s financial resources and also China’s market insights.
Now I am in the position of CEO, I am committed to continuing the successful model of partnership and trust that was established between China and Australia over many years.”