Biz
China, Australia to develop mine
2009-Jul-27 12:53:01

Wuhan Iron and Steel (Group) Corp, the country's third-largest steel maker, signed an agreement with Australian Centrex Metals Ltd (CXM) last week to jointly develop iron ore mines in southern Australia.

Under the agreement, which has yet to be approved by the two countries' governments, CXM's listed company will issue 15 percent more shares to Wuhan Iron and Steel, making the Chinese company the second-largest shareholder of the Australian company.

Wuhan Iron and Steel will pay A$216 million ($172 million) to gain 60 percent of the interests of the jointly operated mine area, according to the agreement.

The iron ore mine covers about 600 sq km in southern Australia.

Deng Qilin, general manager of Wuhan Iron and Steel, said the pending deal was a win-win under the current financial crisis.

At the end of last year, Wuhan Iron and Steel paid Centrex Metals Ltd as much as A$180 million ($127 million) for a share in iron ore projects in Australia to secure supplies of the raw material, according to an earlier Bloomberg News report.

According to the report, Wuhan Iron and Steel would also pay A$9.7 million for a 15 percent stake in Centrex, the Adelaide-based company said in a statement.

The two companies also agreed to develop a deepwater port for exports on the Eyre Peninsula in South Australia.

Chinese companies offered at least $18 billion last year to buy mining assets around the world to secure supplies of raw materials.

Sinosteel Corp, China's second-largest iron ore trader, won control of Australian ore producer Midwest Corp last year with a A$1.36 billion offer.

"Wuhan Iron and Steel is committed to the rapid development of the Eyre Peninsula deposits," Centrex Chairman David Lindh said in a statement to the Australian stock exchange.

Business recovery

In March, Wuhan Iron and Steel cut production by at least 15 percent as the economic slowdown crimped demand, Deng of Wuhan Iron and Steel said.

Wuhan Iron and Steel, Baosteel Group Corp and Anshan Iron and Steel Group have idled four furnaces, Deng said.

Deng said earlier this year that weaker demand might force his company, which has 30 million metric tons in capacity, to delay its Fangcheng Port project.

However, thanks to government stimulus packages for the steel and auto industries, Wuhan Iron and Steel saw both sales and profits swelling rapidly.

The company is a major domestic supplier of automotive steel products.

Wuhan Iron and Steel is targeting sales of at least 120 billion yuan ($17.57 billion) for the year, Deng said.

A statement posted on the State Council's website on March 20 said that taxes on steel imports and exports would also be reviewed.

The government will also encourage local steelmakers to buy assets overseas, according to the statement, as it seeks to boost competitiveness and purchasing power for raw materials.

Canadian mine

Meanwhile, Wuhan Iron and Steel has finalized the terms of a $240-million investment agreement with Consolidated Thompson Iron Mines of Canada.

According to the agreement, Wuhan Iron and Steel will buy 38.7 million common shares of the Canadian company at a price of C$2.72 per share, which represents a 19.99 percent stake in the company.

Consolidated Thompson will receive aggregate proceeds of C$105.2 million.

The two companies will also establish a limited partnership in which Wuhan Iron and Steel will hold a 25 percent interest, and to which Consolidated Thompson will contribute its Bloom Lake property.

Located in Duplessis County in Quebec, Bloom Lake is a development-stage iron ore project with a 34-year mining life.

The move is expected to help the Chinese company secure its overseas iron ore supply at a time when the country's steel industry is largely depending on the world's top three iron ore miners: BHP, Rio Tinto and Vale.

Richard Quesnel, president and CEO of Consolidated Thompson, said the agreement will help the Canadian company offset debt and provide it with more financial flexibility.

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