Anshan Iron & Steel Group, one of China's top steel mills, will buy a 12.94 percent stake in Australian iron ore producer Gindalbie Metals Ltd for A$39 million.
Gindalbie said yesterday in a statement to the Australian Stock Exchange that it would issue 65 million shares at 60 cents each to Anshan's investment arm in Hong Kong, Angang Group Hong Kong Co Ltd.
Anshan, based in northeastern China, will be the second-biggest shareholder of the Perth-based iron ore firm through the deal.
The money will be invested in the two parties' joint iron ore operations in western Australia.
The deal is the freshest move taken by a Chinese steel maker pursuing iron ore abroad to feed the strong domestic demand fueled by China's booming steel sector.
"Such a move should be encouraged. Chinese steel companies should invest in overseas iron ore development more aggressively to secure reliable supply," said Li Xinchuang, vice-president of China Metallurgical Industry Planning and Research Institute in Beijing.
Overseas iron ore projects owned by Chinese firms now have a combined production of less than 40 million tons a year, according to Li. "The figure is too small to satisfy our demand."
The majority of iron ore the country needs is bought from the world's top three suppliers - CVRD from Brazil, Australia's BHP Billiton and Rio Tinto - which have been upping prices in recent years, adding costs on Chinese steel companies.
However, an official from Shougang Group, another major Chinese steel maker, yesterday told China Daily that it had walked out of a deal to take a 73 percent stake in a Hong Kong-registered unit of Australia's iron ore miner Mount Gibson Iron Ltd because of a price row.
According to the deal clinched last June, Shougang would pay A$52.5 million to obtain a controlling stake in a strategic iron ore asset in western Australia from Mount Gibson.
Li said China's steel industry, the biggest in the world since 1996, will depend more heavily on foreign iron ore as a result of growing domestic demand. He predicted the country's iron ore imports will reach 400 million tons this year and 500 million tons in 2010.
Last year, China imported 326 million tons of iron ore, accounting for more than half of its total demand, according to data from China Iron & Steel Association.
The association said in April that crude steel production in China would climb to 462-475 million tons this year from 419 million tons in 2006.
(China Daily June 5, 2007)