Kam Hing joins Wuhan Steel in Madagascar iron ore venture
Mainland steelmaker Wuhan Iron & Steel (Group), seeking overseas supplies of iron ore, has teamed up with an unlikely partner - a diversifying Hong Kong-listed textile manufacturer - to invest 400 million yuan in a mine in Madagascar.
Wisco Kam Hing Resources, a joint venture between Wuhan Steel and Kam Hing International Holdings, will engage in the exploration and recovery of iron and titanium in the Bekisopa region of the African island nation of Madagascar, Kam Hing chief financial officer Elmen Wong Wai-kong said.
Kam Hing, which chanced upon the mining project as Madagascar's biggest employer, will contribute the mining rights it obtained late last year over a 287 sq km site in return for a 40 per cent stake in the joint venture.
Wuhan Steel, which owns the balance of the venture, will be responsible for setting up and overseeing production.
The company has also committed to purchasing all the metallic resources the mine yields at prevailing international market prices, according to the agreement reached on January 18.
Hubei-based Wuhan Steel imports about 80 per cent of its iron ore to meet steel production needs. Company spokesman Bai Fang said the Bekisopa mine would help it secure a supply of the principal steelmaking ingredient.
Kam Hing, a knit fabric and yarn manufacturer with plants in Panyu and Enping in Guangdong province, first forayed into mining last November when it acquired zinc mine exploration rights in Guangxi for two million yuan.
Soil samples from the Bekisopa site showed iron content of 53.25 per cent and titanium content of 11.42 per cent, Mr Wong said.
A detailed exploration report is expected to be available in the second quarter.
Citing an internal report from Wuhan Steel, Mr Wong said, 'The project will be a viable investment if the site has iron ore resources of more than 100 million tonnes.'
He noted that a nearby 25 sq km iron mine had proven iron ore reserves of 99 million tonnes. 'We are confident that our site will have much greater reserves,' he said.
The initial investment of 400 million yuan - which Wuhan Steel's spokesman declined to confirm - would mainly cover the construction of infrastructure, including roads, a port and mining facilities, Mr Wong said.
Kam Hing, which has been operating in Madagascar since 2006, will be responsible for obtaining government approvals and for the relocation of the 4,000 inhabitants of the site, Mr Wong said.
'Having established a good relationship with the Madagascar government, we hope to invest in other mining projects with Wuhan Steel,' Mr Wong said.
For its core business of textile yarns and fabrics, Kam Hing employs more than 5,000 workers in two factories in Madagascar that produce 1.5 million pieces per month. It plans to expand operations to 20,000 workers over five years.
Mr Wong said the company planned to invest 90 million yuan in the Guangxi zinc project and with mining set to begin in the first quarter of next year. The mine is expected to yield 3,000 to 4,000 tonnes of zinc per month over a 15-year life span.
With no intention of withdrawing from textiles, Mr Wong said Kam Hing was considering spinning off the mining business to show a clearer total picture of the company.
