Sichuan firm buying deposits of key metal
A privately owned Chinese company is poised to take control of two of the world's biggest deposits of a key metal. Sichuan Hanlong, little-known outside the mainland, is building up its reserves of molybdenum, which is used for hardening steel, in nuclear power plants and for missile and aircraft parts.
Hanlong last week completed the acquisition of Australia's Moly Mines via a US$200 million debt and equity deal that gives the Chinese company a 55 per cent stake. This follows an agreement Hanlong made in early March to subscribe for a 25 per cent stake in United States-based General Moly as a prelude to becoming the controlling shareholder. Part of that deal will see Hanlong provide a bank loan guarantee to General Moly for US$665 million.
Hanlong also plans to invest US$5 billion in other Australian resources companies to become a 'fourth force' in the iron ore sector competing with BHP Billiton, Rio Tinto and Fortescue Metals Group.
The company says it has financing in place from the China Development Bank and the Export-Import Bank of China.
Hanlong's funds will also be used to finance the start-up of Moly Mines' Spinifex Ridge iron ore project in the Pilbara region of Western Australia.
'Hanlong has said they want to use Moly Mines to become an international mining house specialising in iron ore, molybdenum and ferroalloys,' Moly Mines chief executive Derek Fisher said.
Following the completion of the two molybdenum deals Hanlong will be a major player in the global market for the metal, which is generally used in steel alloys for making the harder types of steel. It is used extensively in oil and gas pipelines. Every 1,600 kilometres of pipeline requires about 2.5 million pounds of molybdenum.
According to Henan-based China Molybdenum, overall inventory of molybdenum in China now exceeds 45 billion tonnes accounting for 22 per cent of the world's total. Other commentators say China's inventories amount to 30 per cent of global stocks.
'Since China produces about 55 per cent of global steel it would make sense for them to hold a decent proportion of steel raw materials because it is needed,' said Matthew Whittal, head of Australian resources for stockbrokers CLSA.
He said that if the inventories were held in government stockpiles, this would be of more significance than if they were held by steel mills.
China became a net importer of molybdenum last year after the price dropped from around US$30 a pound to US$8 a pound, well below the US$13 a pound it costs China to produce molybdenum. The current price is about US$17 a pound.
Hanlong's Moly Mines acquisition deal is the biggest resources acquisition by a Chinese private company to date, though analysts say that there is often a fine line distinguishing a private from a state owned industry in China.
The company may well have found it more difficult to get approval for control of Moly from Australia's Foreign Investment Review Board if it was a state-owned industry.
'This considerable investment from a highly respected substantial private Chinese group, represents a key milestone in the development of the world's next major primary molybdenum mine at Spinifex Ridge [in the Pilbara region, Western Australia] and the first new large scale molybdenum mine in over 25 years,' Fisher said last week.
The project comprises a resource of 652 million tonnes. The mine is expected to produce 24 million pounds a year of molybdenum concentrate oxide over the 23-year life of the mine.
Hanlong's US target, General Moly, has an 80 per cent stake in the world's largest molybdenum mine, whose reserves in Mountain Hope, Eureka, Nevada, total 1.3 billion pounds.
The remaining 20 per cent is owned by Pohang Iron and Steel Co (Posco), of South Korea. General Moly also owns a molybdenum mine in central Nevada that has molybdenum reserves of around 500 million pounds.
Hanlong is one of the 20 largest private companies in Sichuan. It now has 25 mining projects in China covering gold, rare earths, tantalum, iron ore, copper and molybdenum.
In addition to resources, Hanlong's business portfolio includes natural gas, hydro power, property and food and beverage and employs over 12,000 people, generating sales revenues of more than 16 billion yuan (HK$18.19 billion) with total assets exceeding 20 million yuan.
Hanlong's founder, chief executive and controlling shareholder Liu Han is also the founder and chief executive of Guanghan Pingyuan Development Company, the deputy chief executive of publicly listed Sichuan Hongda Company and the chief executive of Sichuan Jinlu Company which is also listed on the Shanghai Stock Exchange.
In 2008, Liu was named as one of the 10 most influential people in the Sichuan economy in the past 30 years and was named the 16th greatest philanthropist in China last year and was the 19th greatest in 2008.
