Australia rejects China takeover

Prominent Hill mine is near a weapons testing range

Australia has rejected a Chinese state-run firm's $1.7bn (£1.2bn) takeover bid for Australia's Oz Minerals because of national security concerns.

Australia said one of Oz Minerals' key mines was located near a weapons-testing range in the outback.

It said the bid by China's Minmetals could only be approved if the deal excluded this copper and gold mine.

The surprise move jeopardises Oz's future and clouds other Sino-Australian deals still waiting for approval.

"Oz Minerals' Prominent Hill mining operations are situated in the Woomera Prohibited Area in South Australia," Treasurer Wayne Swan said in a statement.

"The Woomera Prohibited Area weapons testing range makes a unique and sensitive contribution to Australia's national defence," he added.

Oz and Minmetals said they would look to revise the deal.

Prime asset

Prominent Hill mine is considered Oz's prime asset and analysts questioned whether Minmetals would be prepared to go ahead with the acquisition without it.

Increased investment by Chinese firms has raised hackles in Australia, which has typically been open to foreign investment.

Australian authorities have yet to decide on Rio Tinto's $19.5bn tie-up with Chinese aluminium firm Chinalco and Fortescue Metals' plan to sell a $770 stake to China's Hunan Valin Iron and Steel.

Australia extended its review of Chinalco's investment until June. Some Rio shareholders have expressed opposition to the deal.

Australian Foreign Minister Stephen Smith, who held talks with his Chinese counterpart Yang Jiechi in Beijing on Friday, defended the decision.

"We encourage overseas foreign investment, capital investment in Australia that is one of the things that the whole of Australia's economy is built on," Mr Smith said

"But from time to time a difficult context passes and we are faced with having to make a decision in the national interest."

Oz Minerals, the world's second-largest zinc miner, is struggling to meet a Tuesday deadline to repay $1.3bn to creditors.

Mining firms are struggling as the global slowdown hits demand for raw materials.