China Metallurgical in A$400m iron mine deal

PUBLISHED : Wednesday, 27 February, 2008, 12:00am
UPDATED : Wednesday, 27 February, 2008, 12:00am

China Metallurgical Group Corp has agreed to pay A$400 million (HK$2.89 billion) for an iron ore mine in Australia, the latest move by a state-run conglomerate to buy assets in that country's booming resources sector amid rising raw material prices.

Cape Lambert Iron Ore, an Australian iron ore producer, said in a filing with the Australian Stock Exchange that China Metallurgical had signed a preliminary pact to buy its namesake project in ore- rich Pilbara.

China Metallurgical paid a A$10 million deposit and has until April 30 to complete due diligence on the project and obtain Beijing's approvals for the acquisition.

The purchase of the as yet undeveloped project also needs approvals by the Australian Foreign Investment Review Board and shareholders of the Perth-based company.

The Cape Lambert project encompasses 223 square kilometres and has an estimated 1.56 billion tonnes of ore. It could produce 15 million tonnes annually for 20 years starting in 2011 or 2012, according to information posted on the company's website.

Iron ore prices have risen for the past six years.

If the project proceeds, it would be China Metallurgical's second project in Australia. The Beijing conglomerate owns 20 per cent of Citic Pacific's A$5.2 billion Sino iron ore project, also in the Pilbara region.

'It will be a trend for Chinese companies to buy into overseas iron ore projects, given the scarcity of the resources and soaring demand from the mainland's steel industry,' said Sabrina Xie Lulu, a metals analyst at Guotai Junan Securities.

China is the world's largest buyer of iron ore, accounting for about 50 per cent of the world's trade in the commodity. It imported 383 million tonnes of iron ore last year, up 56.8 million tonnes or 17.4 per cent year on year, the China Iron and Steel Association said.

The rapid expansion of China's steel industry, now the world's biggest, and the relatively short shipping time to home ports compared with sources in Brazil and Africa are attracting more mainland firms to invest in Australia.

Sinosteel Corp, the mainland's second-largest iron ore trader, is bidding for Australian iron ore miner Midwest Corp in a A$1.2 billion deal.

Last month, Hong Kong-listed Shougang Concord International Enterprises said it bought a 19.73 per cent stake in another Australian iron ore miner, Mount Gibson, for A$408 million. However, the deal may be blocked by Australian regulators.