Baosteel launches joint bid for Australian miner

PUBLISHED : Tuesday, 06 May, 2014, 12:42am
UPDATED : Tuesday, 06 May, 2014, 12:42am

Chinese steel giant Baosteel Resources and an Australian partner launched a A$1.14 billion (HK$8.1 billion) takeover bid for explorer Aquila Resources in a move that could help break the grip of mega iron ore exporters Rio Tinto and BHP Billiton.

The unsolicited offer to take over Aquila could open up a new Australian iron ore export region to supply Asian steelmakers, by jump-starting the US$7 billion West Pilbara Iron Ore project, half-owned by Aquila.

State-owned Baosteel's move would be the biggest foray into an undeveloped iron ore project in Australia by a Chinese investor since Citic Pacific's US$10 billion Sino Iron project, which began producing last year after massive cost overruns and delays.

Baosteel, which already has a 20 per cent stake in Aquila, said it first invested in the firm in 2009 to help it fund the iron ore project and a separate coking coal mine.

"But after five years we haven't seen any projects being started. So we have been very patient, but we've become frustrated," chief financial officer Wu Yiming said.

Baosteel, China's No 2 steelmaker, and rail company Aurizon said they would offer A$3.40 cash per share, a 39 per cent premium to Aquila's close on Friday. The stock closed at A$3.34 yesterday.

Including Baosteel's existing stake, the offer values the target at A$1.42 billion. Aquila is sitting on A$507 million in cash and liquid investments, so the bid effectively values the debt-free company at A$913 million.

"From Baosteel's point of view, China's steel and iron ore demand growth may slow, but overall demand is still going to be massive, so it makes sense to make this acquisition," an analyst said.

If the Baosteel-Aurizon bid is successful and feasibility studies prove the West Pilbara project to be commercially viable, the partners expected to start producing iron ore in 2017-18, said Aurizon chief executive Lance Hockridge.

The project has more than two billion tonnes of resources. As designed, it would produce 30 million tonnes a year in its first stage, dwarfed by Rio Tinto and BHP Billiton, which together are expected to be producing about 620 million tonnes a year by 2017.

But more importantly for Asia's steel producers, Baosteel and Aurizon plan to build a rail line and port at Anketell Point that would be open to other iron ore producers, unlike Rio Tinto's rail and ports, providing an outlet for resources that have been stranded with no transport routes up to now.

Hockridge said the port had been designed to handle up to 300 million tonnes a year.