As the head of a public miner whose majority shareholder is a state-controlled Chinese company, Andrew Michelmore has two very different bosses.
The Minmetals Resources Ltd. chief executive officer answers to shareholders of his Hong-Kong listed company, which is a major zinc and copper producer with operations in Australia and Laos and exploration in Canada.
He also reports to the company's 71.5-per-cent owner, China Minmetals Non-ferrous, which is controlled by China Minmetals Corp., one of the country's largest state-owned entities.
It's a unique position to be in, and Minmetals Resources (MMR) is being closely watched as a model of how China could run more of its businesses as the world's largest consumer of metals looks to acquire more resources to feed an infrastructure building frenzy.
Eyes are also on the company for a glimpse into how business decisions are made in China, particularly after Australia-based MMR made a hostile bid for Equinox Minerals Ltd., the Toronto-based copper producer, earlier this year, but then stepped away when a higher offer came through.
That transaction was one of a handful of resource investments Chinese companies have recently backed away from. On Thursday, state-owned metals producer Sinosteel Corp. suspended work on its $2-billion Weld Range iron-ore mining project in Australia. And earlier this week a natural gas joint venture deal collapsed between PetroChina International Investment Co. Ltd and Canada's Encana Corp.
While some suggest China is making the calls at MMR, Mr. Michelmore is adamant it's a hands-off relationship with his state-owned shareholder.
In a recent interview, he maintained that the company is run independently by his management team, which then reports to the board that includes executives from the parent company. Management's job, he said, is to build the company into a mid-tier diversified minerals business within five years.
"They don't tell us how to do it. They say, 'Tell us what you need to be able to achieve this. It has to be commercially viable,'" he said by telephone from the company's headquarters in Melbourne, Australia. "'This isn't just a bucket of money for you to go about and buy whatever you want.'"
That MMR strategy was tested when it made its $6.3-billion bid for Equinox in April. The hostile move was considered rare for a Chinese player, but what turned out to be more telling was MMR's decision to back off when Toronto-based Barrick Gold Corp. came in with a much higher offer of $7.3-billion.
MMR pulled out of the race within hours, which signalled financial discipline even for a buyer with deep pockets. (MMR will also gain a profit of $150-million from the sale of its Equinox shares into Barrick's bid.) MMR's decision to not compete for Equinox also suggests that China's outlook for the price of copper may be less optimistic than what Barrick's rich-premium bid was based on.
It's the type of inside knowledge Mr. Michelmore cites as an advantage to having a "connections" into the trading side of its Chinese parent. "Being closer to the economy and understanding what's going on actually gives us, in some ways, a privileged position," he said.
Still, he said MMR must take the data and use it to make the right investment decisions. It must also continually prove to its majority shareholder that the company's set-up can be successful.
"You actually have to go and justify it, because these guys are being assessed on … the return on investment they have argued for through acquiring us," Mr. Michelmore said, referring to the 2009 acquisition of Australia's Oz Minerals Ltd. by China Minmetals Non-ferrous. The Australian government approved the acquisition after the Chinese buyer agreed to a number of undertakings, including operating the acquired mines as a separate, commercial business; and keeping the head office and top management jobs in Australia.
The MMR model has been a "learning experience" for both sides, he added. "All of the sorts of things that were concerns - fears about a state-owned company owning assets in another country, and manipulating them - all of those got fixed."