Foreign investment in Aotearoa/New Zealand

Overseas Investment Office – November 2015 Decisions

Chinese Plan Tourist Resort For Waikaretu Farm

Weihai Station Limited, Peihuan Wang, China, People’s Republic of (44.6%), China Public (35.2%), Yuanhui Fu, China, People’s Republic of (14.1%) and Aiguo Zhang, China, People’s Republic of (6.1%), received approval to acquire a freehold interest in approximately 595 hectares of land at 152 Bakers Road, Waikaretu. The vendors were Christopher Gary Deane, Kerry Anthony Deane and Mark Peter Deane as trustees of the Deane Farms Trust,New Zealand (100%): consideration was $7,100,000.

The OIO states: “The Applicant is purchasing a sheep and beef farm to continue current farming operations and increase maintenance and development on the land in order to run the farm at its optimal level. The Applicant also intends to build a lodge on the land which will be primarily used as a training and development facility and as a tourism resort for related business people”.

John Anthony at Stuff reported briefly on this deal (6/1/16): “A Chinese company is planning to build a resort on a large coastal farm it has been given approval to buy near Auckland. The Overseas Investment Office (OIO) has granted consent for Weihai Station to buy 595 hectares of land at 152 Baker Rd, Waikaretu – about 100km southwest of Auckland. The sheep and beef farm is being sold by the Deane Farms Trust”.

“Weihai Station said in its application to the OIO it would continue farming operations and invest in farm development and maintenance to improve its performance. The company also intends to build a lodge on the land which will be ‘primarily used as a training and development facility and as a tourism resort for related business people’, the OIO said. The sale satisfied the OIO in that it brought ‘substantial and identifiable benefit to New Zealand’ through increased exports, productivity and investment”.

“Weihai Station also intends to increase walking access in the area and offered to gift a riverbed to the Crown. One of the few businesses in Waikaretu is Nikau Cave and Cafe which opened its doors in 2008. Owner Anne Woodward, who has lived in the area for more than three decades, said the community was very small and quiet. ‘It’s a very little known area because it’s well off the beaten track’, Woodward said”.

“The township was set a few kilometres back from the coast and featured a school with about ten children, a tennis club and a community hall. The community needed more people especially because the school was marginal to operate, she said. ‘It would be fantastic to have more people living in Waikaretu’. The beach was not accessible to the public because it was private land, she said. There was a bush reserve near the cafe and caves with glow worms. Weihai Station’s lawyer was unavailable for comment on Wednesday and the Deane Farms Trust trustees could not be contacted. The Tourism Industry Association New Zealand was not aware of the resort plans”.

Aussies Buy Maruia Springs Resort

Maruia Hot Springs Property Limited Partnership,Charles Balcombe Disney Davidson, Australia (30%), Yoav Lev, Australia and Holly Bronfman Lev, United States (30%), Brandon Armon Batagol, Australia (10%), Alex Andrew Zotos, Australia (10%), Marc Maurice Cohen Australia (7.5%) and Kimberly Hamilton and James David White (12.5%) received approval for an overseas investment in sensitive land, being Maruia Hot Springs Property Limited Partnership and Maruia Hot Springs Limited’s acquisition of:

a freehold interest in 1.8 hectares of land at State Highway 7, Lewis Pass, Buller; and
a leasehold interest in approximately 0.45 hectares of land at State Highway 7, Lewis Pass, Buller.

The vendor was Maruia Hot Springs Thermal Resort Limited,Takako Ogino, New Zealand (54.5%), Glen Stapley and family, New Zealand (43.25%) and Junko Yamamoto, Japan (2.25%): consideration was $2,268,000. The OIO simply states: “The Applicant is acquiring a hot springs resort in the Lewis Pass region of the South Island known as Maruia Springs. The Applicant plans to upgrade and redevelop the Resort”.

Tim Fulton at Stuff reported briefly on the resort’s history (5/1/16). “A former farmers’ pub transformed into a Japanese hot springs resort has been bought by a consortium for $2.26 million. The Overseas Investment Office (OIO) has approved the sale of 2.25 hectares of freehold and leasehold land beside State Highway 7 to a consortium that includes Australians, an American and two New Zealanders”.

“Japanese-born owners Akira Matsushita and Takako Ogino bought the complex in Lewis Pass 24 years ago and created a Japanese-themed resort complete with bath house. The colourful pair was known for taking helicopter rides in full kimono and for Ogino’s love of motorbikes. In April 2014 they put the Buller district business on the market, saying they were returning to Japan”.

“Maruia Springs includes hot pools and a spa and as well as the bath house, and a 19-room lodge with a bar, restaurant, gym, owners’ residence, and staff accommodation. Maruia Hot Springs Property plans to upgrade and redevelop the resort, an OIO case report said. When the resort was put up for sale it employed five full-time and ten part-time staff. The resort has its own hydro plant to generate power and a specially-designed sewage purification system. OIO records show Ogino owned 54.5% and the remainder was held by Glen Stapley and family (43.25%) and Junko Yamamoto (2.25%)….”

Chinese Partner Sheep Milk Farm In Kuratau

Maui Milk Limited,Trustees of the Waituhi Kuratau Trust, New Zealand (40%), Liang Chen, China, People’s Republic of (24%), Liwu Zhou, China, People’s Republic of (21.6%), Binlan Dang, China, People’s Republic of (12%) and XiaoFang Han, China, People’s Republic of (2.4%), received approval for the acquisition of a leasehold interest in approximately 490 hectares of land at 120 Whareroa Road, Kuratau.

The vendor was Trustees of the Waituhi Kuratau Trust,New Zealand (100%); consideration was $1,160,810. The OIO states “The Applicant will develop a sheep dairy farm on the Land. Sheep milk powder produced will be exported to the Chinese market, for sale through the Applicant’s distribution network”. Gerard Hutching at NZ Farmer reported on the deal (8/1/16):

“Chinese investors have bought into sheep milk company Maui Milk, in order to guarantee themselves security of supply after being left ‘high and dry’ last year. Maui Milk General Manager, Peter Gatley, said a group of Shanghai business people had developed a sheep milk powder business over the last five years using milk from Southland company Blue River. However when Blue River sold its factory to different Chinese interests last year, it left the original company without any supply. It then approached Waituhi Kuratau Trust (WKT), the Turangi-based Maori land trust, which owned Maui Milk”.

“The trust has now sold a leasehold interest to the Chinese in 490 hectares of land in Kuratau to Maui Milk for $1.2 million, in a deal which has just received the go-ahead from the Overseas Investment Office. Under the new ownership structure, the trust owns 40% of Maui Milk, with the remainder held by four Chinese nationals. ‘The investors had been left high and dry, they needed to find an alternative supply of products to capitalise on the work they had already done, and they wanted to invest in the value chain to provide some security”, Gatley said”.

“The approach from the investors came at a good time for WKT which had been milking for several years but had found it a constant battle to achieve secure supply arrangements. They were selling to local cheese manufacturers and making yoghurt, and exporting raw frozen milk that was being made into cheese in Australia. It was an ‘appealing’ proposition to link up with the Chinese investors, Gatley said. Processing is carried out at the Innovation Park dryer in Hamilton but Gatley said this would be an interim measure until the business grew”.

“WKT milks 2,500 ewes, which is not enough to underpin a milk powder business. Not only is more volume needed to satisfy the market, but drying milk from just one farm is very expensive. In a bid to expand the industry, last year WKT bought 1,700 east friesian embryos which had been deep frozen in liquid nitrogen for more than 20 years by Dr Jock Allison, the original importer of the special milking breed. These embryos were implanted into ewes last year, resulting in more than 300 ewes and 300 rams. Allison described the result as ‘outstanding’ for frozen embryos”.

“The resulting purebred sheep will now be used in two ways: some will be bred with other east friesians, while the rams will be mated over maternal breeds such as poll dorset, coopworth or highlander to produce an ‘F1’, or first cross – a hybrid with milking ability, constitution and hybrid vigour. Gatley, who previously ran the LIC dairy cattle genetics business, said working with sheep was a welcome contrast”.

“Unlike cows, they were milking as yearlings and they often had two offspring. The females resulting from the embryo programme will be milked in 2016, providing valuable data on the comparative performance of the pure strain under local conditions, and the top performers will be selected as embryo donors. Rams from various bloodlines will be retained for progeny testing, and the remainder will generate up to 10,000 crossbred milking ewes in their first year”

“Gatley said these ewes will be a 50% dairy animal. ‘But if you select strictly, very quickly the lamb they produce can be 75% (dairy), so we can upgrade large numbers of sheep while at the same time expand the population of purebred animals as well. This is an enormous kickstart’. By contrast with dairy cows, sheep were less damaging to the environment. The 2,715 ha WKT farm is on the shores of Lake Taupo, where it would be impossible to run cows under recent nutrient restrictions”.

“New Zealand was better suited to sheep than goat dairying, Gatley said, because the expertise already exists to farm sheep, and grazing systems have been developed. Goats had to be housed and raised on feed. He did not agree with predictions of a billion dollar sheep dairy industry within ten years. ‘But a business doesn’t have to be big to be successful'”.

Z Energy Buys Caltex And Challenge

Z Energy Limited,New Zealand Public (39%), Australian Public (33.2%), various overseas persons (17.9%) and New Zealand Superannuation Fund Nominees Limited, New Zealand (10%), received approval for the acquisition of rights or interests in up to 100% of the shares of Chevron New Zealand, which owns or controls a leasehold interest in approximately 0.3161 hectares of land at 170 Fryatt Street, Dunedin.

Approval was also received for an overseas investment in significant business assets, being the Applicant’s acquisition of rights or interests in up to 100% of the shares of Chevron New Zealand, the consideration of which exceeds $100m. The vendor was Chevron South Asia Holdings Pte Limited,Chevron Corporation, United States of America (100%); consideration was $785,000,000. The OIO states: “The Applicant intends to make significant cost savings through supply chain savings and corporate savings, which it will pass on to its customers. The Applicant also intends to create new job opportunities by bringing some roles currently undertaken for Chevron New Zealand in the Philippines to New Zealand”.

Most Kiwis have concerns about the cartel that sells us petrol, and this sale isn’t going to improve competition further, even if it is to a majority Kiwi-owned company. However, despite these concerns, under the heading “Z Energy Cleared To Acquire Chevron, Subject To Divestments” the Commerce Commission nevertheless cleared the deal (20/4/16): “The Commerce Commission has cleared Z Energy Limited’s application to acquire 100% of the shares in Chevron New Zealand, the owner of the Caltex and Challenge brands in New Zealand”.

“The clearance is subject to Z Energy divesting 19 retail sites and one truck stop in locations where the Commission considers competition would be substantially reduced as a result of the merger. The Commission analysed the competitive impact of the proposed merger on the supply of fuel to retail and commercial customers. It also considered how the merger would impact on competition in upstream markets associated with refinery, distribution and storage infrastructure. In particular, the Commission’s analysis focused on seven markets affected by the acquisition:

retail service stations
truck stops
direct supply to commercial customers and fuel resellers
terminal storage facilities
aviation fuel
marine fuel
bitumen

“The Commission’s role was to consider whether the merger would substantially lessen competition in a market due to the loss of Chevron. The investigation did not assess whether fuel prices in New Zealand are too high. Chair Dr Mark Berry said that having analysed each market, the Commission is satisfied that Chevron’s departure from New Zealand would not substantially lessen competition subject to divestments being undertaken”.

Commissioners were in agreement on the impact of the merger on six of the seven markets, with the exception being retail service stations. ‘Chevron, as supplier to the Caltex and Challenge brands, has been a passive competitor in New Zealand and followed the lead of its rivals rather than taking an aggressive approach in its pricing. We consider, by majority, that subject to Z Energy divesting 19 retail sites Chevron’s absence would not make a material difference to the competitive dynamics we currently see, where retail price movements are dominated by Z, BP, Mobil and Gull’, Dr Berry said”.

“The Commission assessed whether the merger could increase the ability of the remaining three major retailers to coordinate retail pricing. Three of the four Commissioners on the Division (decision-making panel), Dr Berry, Sue Begg and Anna Rawlings, consider that the information obtained during the investigation showed pricing patterns differ across the country and Chevron’s absence would not make coordination more likely given the divestments the Commission required. Dr Jill Walker dissented on this part of the decision”.

“‘Behaviours such as price following, regional pricing differences or rising margins can be found in either competitive or coordinated markets. Where we may have had the most concerns about the merger enhancing the prospect of coordination, the majority consider the divestments provide comfort that this behaviour is no more likely post-merger than it is now. Further, we don’t believe Chevron’s absence would make a material difference given its passive role in the market’, Dr Berry said”.

“‘Commissioner Walker’s dissenting view is that there is evidence to suggest that coordination of retail prices is occurring in some local markets, which would become more firmly entrenched with the merger. Moreover, the permanent removal of a competing supply chain means the potential for Chevron’s assets to disrupt coordination in the future is gone. In the remaining six markets, we unanimously concluded that Z Energy would continue to face constraints from remaining competitors, or customers can exercise countervailing power when negotiating with it. In the case of bitumen, Chevron already intended to leave the market and bulk customers have access to imports if Z Energy was to materially raise its price'”. Brief summaries of the Commission’s decisions relating to each market are outlined below.

“Retail. Z Energy (Z) owns and operates a network of just over 200 service stations and sets the retail price at those stations. It also supplies a small number of independently-owned Z-branded stations on a wholesale basis. Chevron supplies around 150 Caltex-branded service stations on a wholesale basis. It also supplies fuel in the retail market indirectly through the Challenge and McKeown brands.

“As a result of the transaction, the competition between Z and Chevron for retail customers that purchase through service stations would be lost. Competition from BP, Mobil, Gull and independents would remain. The Commission assessed whether the proposed merger would be likely to substantially lessen competition in any one or more local retail markets either because by removing Chevron it would:

allow Z to profitably increase the prices it charges to consumers in areas where both Chevron and Z are present – referred to as unilateral effects; or
allow Z, BP and Mobil to enhance coordination between themselves so they could collectively exercise market power to raise or maintain prices above competitive levels –referred to as coordinated effects.

“Unilateral Effects. The Commission considered whether the merger would allow Z’s ability to increase prices at service stations in local areas by removing Chevron as an independent competitive constraint. We concluded the proposed merger would allow Z to increase prices and therefore that the merger would be likely to substantially lessen competition in 22 local areas. Some of the 22 areas overlap. As such, Z was able to remedy those concerns through an undertaking to divest 19 stations. The stations are located in the following regions:

3 in Northland
1 in Auckland
3 in the Waikato
1 in the Bay of Plenty
1 in Wellington
2 at the top of the South Island
3 in Christchurch
4 in Canterbury (outside of Christchurch)
1 in Otago”

The divestment undertaking provided by Z remedied all of our concerns in these areas. The specific sites in question will be detailed when the full written reasons are released, as Z needs to properly inform the affected staff and any independent service station owners. In all other local areas, we concluded that the merged entity would face sufficient competition from remaining BP, Mobil, Gull and/or independent service stations”.

“Coordinated Effects. The Commission assessed whether the proposed merger would have, or would be likely to have, the effect of substantially lessening competition by increasing the likelihood of coordination between the remaining major fuel companies (Z, BP and Mobil). The majority of the Division concluded it would not. The type of coordination we are referring to is not illegal under the Commerce Act”.

“Coordination involves firms in a market recognising that they can reach a more profitable outcome if they accommodate each other’s price increases rather than competing on volume, price, or other dimensions of competition. Coordination is more likely to occur in markets with only a few players where they face similar costs and can readily observe what each other are doing”.

“As part of determining whether removing Chevron would make a difference, the Commission considered whether coordination was occurring in the retail market and whether the proposed merger would enhance this coordination. The behaviours occurring in the retail fuel markets in New Zealand, such as price following, regional pricing differences and rising margins, can occur in both coordinated and competitive markets. The majority of Commissioners consider it is possible, though not definitive, that coordination is occurring in some local markets”.

“However, where they may have had the most concerns about coordination occurring post-merger, they consider the divestments remedy those concerns. Further, they consider that the loss of Chevron would make no material difference to this behaviour given its passive role in the market as a wholesale supplier. The likelihood of Chevron being an effective constraint on coordination in the future is low, even if sold to another party”.

“Commissioner Walker was not satisfied that the proposed merger would not increase the ability of the remaining three major fuel companies to coordinate retail pricing. She considers that there is evidence of tacit coordination between petrol retailers in some regions, primarily where Gull is not present, and that this has contributed to increasing margins in the petrol industry. Commissioner Walker considers that the permanent removal of Chevron’s assets as an independent supply chain means its potential to disrupt coordination is gone and this behaviour would become more firmly entrenched post-merger”..

“Storage terminals. Refined fuel products are delivered to, and stored in, terminals until dispensed for use in downstream markets. In general, terminals are located at coastal ports, although a notable exception is Mobil’s inland terminal at Woolston in Christchurch. The four major fuel firms (Z, BP, Mobil and Chevron) have access to each other’s terminals under a borrow and loan system, which enables the firms to charge each other throughput fees to withdraw fuel from a terminal they do not own.

“Post-merger, Z would own and control a greater proportion of terminal storage facilities at ports around New Zealand. In particular, Z would own all terminals at Timaru and almost all terminals at Nelson. However, the Commission does not consider that the merger would impact on BP and Mobil’s ability to compete in the downstream markets in these areas. This is because Z would continue to require access to terminals Mobil and BP own elsewhere, ensuring they would have countervailing power to constrain Z from substantially increasing the price for access to its terminals or reducing its quality of service.

“Aviation. Our assessment of the aviation market focused on the potential for Z to raise the price that airlines pay for Jet A-1 fuel at Auckland Airport. Post-merger, Z would take over Chevron’s supply agreements, reducing the number of Jet A-1 providers from four to three. Air New Zealand raised concerns that post-merger its supply of Jet A-1 would be concentrated in the merged entity.

“The Commission does not consider that the proposed merger would have a substantial impact on competition for Jet A-1. BP and Mobil have the ability to increase supply of Jet A-1 at Auckland Airport through increasing imports of Jet A-1 in Christchurch and Wellington, which the Commission considers would constrain Z from substantially increasing its prices post-merger. The evidence also shows that import parity pricing influences prices in this market”.

“Commercial. The major fuel firms compete directly or indirectly (through their resellers) to supply diesel to bulk commercial customers, such as freight companies, bus operators or smaller clients like farmers. Our assessment focussed on whether the merger would allow Z to raise prices above the level that would prevail without the merger. All of the major fuel firms have an established presence throughout New Zealand and have the ability to expand the amount of diesel they supply directly to bulk commercial customers. For these bulk customers, Z would be constrained by the presence of both BP and Mobil”.

“Truck stops. Each of the major fuel firms has a network of truck stops that span the country, though the locations of their truck stops vary geographically. At a national level and at different regional and local levels, Z would be constrained by the presence of BP and Mobil’s truck stop networks or one of Mobil’s related resellers, except in one local area – Kawerau. Z and Chevron currently operate the only truck stops in Kawerau and, post-merger, local truck stop customers would have no alternative to the merged entity. The divestment undertaking provided by Z remedied our concerns in Kawerau.

“Marine. All marine fuel supplied in New Zealand is produced at the refinery and the market is best characterised as a bidding market, where customers play fuel firms off against each other so as to obtain competitive prices. Given that Chevron is not a significant competitor in the supply of marine fuel, we consider that its removal from the market would not alter any existing market power held by Z. Post-merger, BP and Mobil would remain as alternatives to Z in the supply of marine fuel.

“Bitumen. Bitumen is used in the construction and maintenance of roads and the production of asphalt. Both BP and Mobil ceased supplying bitumen in New Zealand a number of years ago, leaving Z and Chevron as the only two suppliers of domestically refined bitumen. In its application Z submitted that Chevron intended to exit the bitumen market, leaving Z as the sole domestic supplier regardless of whether the merger was approved. The Commission accepts this would be the likely outcome without the merger. Some domestic customers also have access to imports”.

Aussies Buy Wakefield Hospital

Evolution Healthcare (NZ) Pty Ltd,Australia (100%), received approval for the acquisition of rights or interests in 100% of the shares of Austron Limited which owns or controls:

a freehold interest in 2.2 hectares of land at Bowen Hospital, Churchill Drive, Crofton Downs, Wellington; and
a freehold interest in 1.5 hectares of land at Royston Hospital, Hastings.

Approval was also received for an overseas investment in significant business assets, being the Applicant’s acquisition of 100% of the shares in Austron Limited, which has assets valued at over $100 million. The vendors were existing shareholders of Austron Limited,Royston Hospital Trust Board, New Zealand (41.2%), Ellen Trust, New Zealand (31.6%), Sir Robertson Stewart Family Trust, New Zealand (19.8%), Webb Family Trust, New Zealand (5.9%) and GRAW Trust, New Zealand (1.5%): consideration was “withheld under section 9(2)(b)(ii) of the Official Information Act”.

The OIO states: “The Applicant intends to undertake a significant redevelopment of Wakefield Hospital, in Wellington and, once complete, introduce new oncology and rehabilitation services. The Applicant also intends to undertake a development of Royston Hospital in Hawkes Bay”. See our November 2012 and October 2014 commentaries for details of Evolution’s original purchase of these sites.

Canadian Government Buys Another Oxford Dairy Farm

Ramsay Dairy Farm Limited,Canadian government (100%), received approval for the acquisition of:

a freehold interest in approximately 322.9 hectares of land at 249 Domain Road, Oxford, Canterbury; and
a freehold interest in approximately 34.6 hectares of land at 282 Domain Road, Oxford, Canterbury

The vendors were Oxford Pastures Limited,New Zealand (100%) and Farm Partners Limited,New Zealand (100%); consideration was “withheld under section 9(2)(b)(ii) of the Official Information Act”. The OIO states: “The Applicant is ultimately, indirectly, owned by the Public Sector Pension Investment Board. The land is currently being used as a dairy farm. The Applicant intends to acquire the land for the purpose of dairy farming and milk production and will engage FarmRight to manage the land for that purpose.

“The Applicant intends to invest in the farm so as to increase productivity. In particular, the Applicant intends to:

increase the milking platform on the farm, largely through significant investment in irrigation infrastructure;
increase the herd size run on the farm;
increase storage for effluent and increase the effluent dispersal area;
carry out roading and other improvements that will improve stock flow, and allow for the higher stocking rate; and
carry out aggressive re-grassing of the milking platform”.

This huge investment fund seems to like our assets. See our November 2014 and September 2015 commentaries for details of other dairy farm purchases in the area. See our April 2013 commentary for details of this pension fund’s original investment in the Kaingaroa Forest, which was increased in October 2014. See our November 2014 commentary for details of the pension fund’s purchase of the $1 billion AMP property portfolio.

David Jones Buys Kirkcaldies� Lease For $1

David Jones Pty Limited,South African Public (53.8%), North American Public (24.3%), various overseas persons (16.7%), and Singapore Public (5.2%), received approval for the acquisition of a leasehold interest in approximately 0.7 hectares at 165-177 Lambton Quay, Wellington. The vendor was the Kirkcaldie & Stains Limited,New Zealand Public (93.6%), and various overseas persons (6.4%): consideration was $1.

The OIO states: “The Applicant is acquiring the lease for the Kirkcaldie & Stains premises. The Applicant will refurbish and open its first ‘David Jones’ branded store in New Zealand in 2016. The cost of the refurbishment is expected to be around $20 million”. Collette Devlin at Stuff reported briefly on this deal (5/1/16): “Kirkcaldie & Stains may have more than 150 years of history but its lease has gone for $1”.

“David Jones’ move into New Zealand was given the green light by the Overseas Investment Office (OIO) in November but was made public by the office on Tuesday. A Kirkcaldie & Stains statement to the NZX in November said the Australian shopping mall operator had been granted OIO approval, meaning the agreement to take over the lease of its Lambton Quay main store was now unconditional”.

“On Tuesday the OIO released its Decision summaries for November 2015, which shows the consideration for acquisition of a leasehold interest in about 0.6617 hectares was sold for $1. The sale was approved by the OIO on the basis that it added market competition, greater efficiency for productivity and additional investment for development purposes. The Decision says David Jones was acquiring the lease for Kirk’s premises and would refurbish and open its first ‘David Jones’ branded store in New Zealand in 2016”.

“The cost of the refurbishment is expected to be about $20 million. Under the terms of the deal, David Jones is paying $A400, 000 ($NZ428, 000) to take over Kirkcaldie & Stains’ lease and buy the rights to use its name. Kirkcaldie & Stains, which opened in 1863, is set to close within the next few weeks, with David Jones, which is owned by South African company Woolworths Holdings, expected to open in mid 2016”.

Waihi Mine Gets New Owner

OceanaGold Holdings (Waihi) Limited, United States Public (49%), Canada Public (19%), United Kingdom Public (9%), Australian Public (9%), European Public (8%), Federal Republic of Germany, Germany (4%) and various (2%), received approval to acquire rights or interests in up to 100% of the shares of Newmont Waihi Gold Limited (the “Investment”). The vendor was Newmont Mining Corporation, United States of America (100%); consideration US$101,000,000.

The OIO states: “The Investment will see the Applicant become the owner of certain North Island mining assets including the Martha open pit mine and the Correnso underground mine (“Correnso”) at Waihi and 493.9 hectares of sensitive land used for mining and ancillary mining activities. The Applicant plans, among other things, to implement a range of improvements to the underground mining operations at Correnso and increase exploration expenditure”.

Will Oceana be any better than Newmont Mining, who has had a chequered history at its Waihi sites? Newmont had to buy numerous properties around the town because of subsidence caused by its mining operations or to act as a buffer as stated in the above approval. See our monthly commentaries during 2002 to 2005 and July 2010. Simon Hartley at the Otago Daily Times (1/5/15) reports on the background and context for this deal: “East Otago-based Oceana Gold has bought Newmont Mining Corp’s North Island Waihi operations for $US101 million ($NZ132.3 million), offering surety Oceana’s New Zealand operations will continue for several years. The combined operations will this year employ about 1,000 staff in New Zealand and overall gold production next calendar year will be potentially well beyond 400,000 ounces, including Philippine contributions.

“In the face of rising costs and gold price volatility, Oceana has shed almost 300 staff and contracting jobs from Macraes in Otago and Reefton on the West Coast, as part of a $US100 million efficiency drive during the past two years. Oceana is already the country’s largest gold miner and has expectations of producing up to 335,000 ounces of gold this year, from the South Island and the Philippines. The North Island acquisition is expected to contribute a further 100,000 oz annually.

“Oceana Chief Executive, Mick Wilkes, said Waihi represented a unique opportunity to acquire a high quality asset which had demonstrated an ability to repeatedly extend its mine life during the past 27 years ”in what is still a very prospective, high-quality goldfield. We’ve long believed that Waihi represents a strong strategic fit within Oceana Gold. We’re excited about the prospect of acquiring it and welcoming its experienced workforce to our team,’ he said.

“In an interview, Mr Wilkes said there would be several ”synergies” from the acquisition, including underground mine management, expertise and experience, equipment and procurement from suppliers. The intended purchase is subject to gaining regulatory approvals and will be paid for from a mix of cash reserves and drawing down of existing debt facilities. The acquisition is to contribute to Oceana’s balance sheet from July 1. The Frasers underground mine in East Otago recently got a mine life reprieve, being extended out to 2016 and the open pit operations might also yet be extended beyond 2017, but a cloud still hangs over Reefton operations. When asked, Mr Wilkes said the Waihi acquisition would not offset the planned mothballing of the Reefton open pit operations, at the end of 2015. Each mine in Oceana’s expanding portfolio had to justify its production costs, Mr Wilkes noting he ”didn’t expect any significant long-term recovery’, in the price of gold, which has undermined Reefton’s viability for the past two years.

“All operations at Waihi were expected to continue as ‘business as usual’. Its gold would continue to be smelted into rough ‘dore’ (unrefined gold-silver-alloy) bars, for export and minting, Mr Wilkes said. A review of operations would take place after June. Expectations were the workforce would be unchanged and capital expenditure, such as that on developing the underground Correnso mine, would be financially backed by Oceana. Exploration spending above and below ground would continue at Waihi, at about $5 million per year, which would include gold veins near the old, still closed, Martha pit.

“Mr Wilkes had set a ”cut off” selling price of about $US1,250 per oz for New Zealand operations in March, and said yesterday that rule of thumb was unchanged. However, he believed Waihi’s overall cost of production could reduce overall New Zealand operation costs in the future. Oceana’s quarterly result released yesterday revealed strong actual production for the quarter, of 92,712 ounces of gold produced, compared with 91,146 a year ago. The return from gold sales was down from $US170.3 million a year ago to $US129.3 million.

“After-tax profit declined from $US58.9 million to $US24.4 million. Commodity prices for both gold and copper were down for the quarter, but cash costs to produce an ounce were kept low, despite climbing from $US369 last year to $US402. Debt was reduced by $US13.4 million and $US8.4 million went to cash in hand, which stood at $US59.6 million”. See our May 2006, April 2009, April 2011 and March 2013 commentaries for details of other OceanaGold land purchases particularly in Central Otago around the Macraes site.

Dubious Aussies Buy NZ Institute Of Sport

In what is looking like another underarm incident, Intueri Education Group Limited,Australian Public (78.5%) and New Zealand Public (21.5%) received approval for the acquisition of rights or interests in up to 100% of the shares of New Zealand Institute of Sport Limited, which owns or controls a leasehold interest in 1.6 hectares of land at 66A-68 Wharenui Road, Christchurch.

The vendors were John Ioane Fiso, Anne-Marie Hanning and Rebecca Sengia Ama as trustees of Trust 191 New Zealand (100%): consideration was $19,250,000 subject to adjustment in accordance with the share sale agreement. The OIO states: “The Applicant is involved in the ownership and operation of private training enterprises. The Applicant intends to expand the private training enterprises of New Zealand Institute of Sport Limited, by hiring additional staff and focusing its expansion efforts on international student markets”.

However it appears Intueri’s credentials are now coming into question on a number of fronts. As reported by Radio NZ (30/6/16): “The Australian-owned trade school company facing a fraud investigation is also the subject of yet another Government investigation. The Overseas Investment Office (OIO) told RNZ it would investigate the education group, Intueri, after it was allowed to purchase the New Zealand Institute of Sport. Questions have arisen over how the company could have met the good character test required of foreign buyers”.

“Australian-owned education group Intueri has been under scrutiny since it received funding for non-existent students at its dive school between 2009 and 2014. Last week, Intueri was ordered to pay back $1.47 million to the Tertiary Education Commission (TEC) for enrolling the non-existent students. Its dive school also pleaded guilty to a WorkSafe charge following the 2014 death of a student”.

“The Serious Fraud Office is already looking into discrepancies at the company’s subsidiary, Quantum Education, which offers certificates and diplomas in subjects including tourism, counselling and computing. Late last year, the office gave Intueri permission to buy the New Zealand Institute of Sport, which offers diplomas and degrees in sport and fitness. OIO Group Manager, Annelies McClure, said it was aware of the company’s problems, but was satisfied the company still met the good character test. She said the SFO investigation was announced in January after OIO permission was granted. ‘The OIO began its own investigation in February 2016 and that investigation is ongoing’, Ms McClure said in a statement”..

“Labour MP David Cunliffe said it ‘beggared belief’ that the purchase would have passed the test. Intueri, however, maintains it does meet the good character test. Chief Executive, Rob Facer, said Intueri was not responsible for the problems at the dive school, which occurred under the previous owners. He said, when Intueri did take over, it asked Ernst & Young to do a review.

“That review, which identified the fake students, was handed over to the Tertiary Education Commission. The OIO process was completed long before any issues were raised with Quantum Education, Mr Facer said. He said the SFO investigation into Quantum appeared to date to before Intueri purchased that institute as well”. Rob might be putting on a brave face, but with all these various investigations, it seems Intueri’s reputation, or supposed good character, is highly questionable.

Other November Decisions

Helena Bay Holdings Limited,Alexander Abramov, Russia (100%), received approval for the acquisition of a leasehold interest in approximately 88.1ha of Maori freehold land at Russell Road, RD 4, Hikurangi (“Land”). The vendor was Trustees of the Paremata Mokau A13 Ahu Whenua Trust as lessor New Zealand (100%): Consideration was $692,010. The OIO states: “The Land is currently owned by the trustees of the Paremata Mokau A13 Ahu Whenua Trust.

The Applicant seeks consent to enter into a long term lease over the Land. The Applicant intends to farm the Land and undertake capital improvements to the Land. On termination of the lease, the Land and improvements will be returned to the trustees of the Paremata Mokau A13 Ahu Whenua Trust”. See our January 2009 commentary for details of Abramov’s purchase of the neighbouring farm.

Canoe Wines Limited Partnership,Francis Jay Short, United States of America (50%), and Peggy Ann Dupey, United States of America (50%), received approval for the acquisition of a freehold interest in approximately 10.4 hectares of land at Pirinoa Vineyard, Lake Ferry Road, Martinborough. The vendor was Personal Property Limited,Peter Croft, New Zealand (100%): consideration was “withheld under section 9(2)(b)(ii) of the Official Information Act”. The OIO states: “The Applicant currently owns and operates the Nga Waka vineyard and winery located in Martinborough. It is acquiring the land to provide an additional secure grape supply to enable Nga Waka to successfully expand its wine business and increase its export capacity”.

Scott Taylor and Rebecca Nelson Australia (100%) received approval for the acquisition of:

a freehold interest in approximately 0.4 hectares of land at 14 Carlin Creek Drive, Queenstown, and
a freehold interest in a 1/39th share of 2.8 hectares and a 1/39th share of 0.9 hectares of land at Lakeside Estate, Queenstown. The vendor was Lynette Therese Erceg New Zealand (100%); consideration was $730,000. The OIO states: “The Applicant is acquiring the land for use as a residence and will contribute to the Wakatipu LandSAR Group and the Wakatipu Wilding Conifer Control Group Inc”.

Maria Lisa Gigney, Dale Andrew Long and Paul Joseph Dorrance as trustees of the Gigney and Long Family Trust,Australia (100%), received approval for the acquisition of a freehold interest in approximately 7.4 hectares of land at 72 Matangi Rd, Tuki Tuki Valley, Havelock North. The vendor was Waiparemo Holdings Limited,Charles Arthur John Whyte, New Zealand (100%); consideration was $890,000. The OIO states: “The trustees will purchase the land to provide a residence for Maria Gigney and Dale Long, who intend to migrate to New Zealand and reside in New Zealand indefinitely”.

Campaign Against Foreign Control of Aotearoa,
P.O. Box 2258
Christchurch.