Wuhan Iron & Steel Co (WISCO) is investing A$180 million (US$127 million) to buy a 50 percent stake in five iron ore mining projects owned by Australian miner Centrex Metals Ltd.
WISCO, one of China's largest steelmakers, would also pay an additional A$9.7 million for a 15 percent stake in Centrex, the Australian firm yesterday said in a statement to the Australian Stock Exchange.
Citic Securities analyst Zhou Xizeng termed the deal 'a good news' and said it would be beneficial for WISCO's iron ore supplies in the long run.
Zhou said it is a good time for Chinese enterprises to buy overseas assets as prices of some mining resources have fallen due to the global financial crisis.
Iron ore contract prices, which jumped sharply in recent years fell this year after demand shrank globally. Cash prices for iron ore delivered to China have fallen to 700 yuan per ton from 1,800 per ton in October.
Responding to the decline, many Chinese steelmakers have started to increase their overseas mining reserves. Shougang Group recently bought into Australian iron mining company Mount Gibson Iron Ltd.
Michael Heffernan, a client adviser with Austock Securities Ltd was quoted by Bloomberg News as saying that Chinese companies' buy-in could also be good for some Australian miners who have genuine prospects.
WISCO was not reachable for comments yesterday.
"This is a deal that's been done in a market that's generally seen to be difficult," Centrex Chairman David Lindh said. "We've been working on this for many months. This will be a long-term deal."
WISCO and Centrex also agreed to develop a deepwater, export port on the Eyre Peninsula in South Australia.
According to the agreement, Wuhan will pay A$59.5 million within a week of the formal agreement being executed for its share of five tenements, expected by March 17, Centrex said in the statement. It will make an A$30 million payment in March 2010 with subsequent payments subject to the achievement of resource targets.
The deals, however, need approval from both the Chinese and Australian governments.
Another Chinese steelmaker, Baotou Iron & Steel Group, owns a 10.12 percent stake in Centrex.
WISCO, based in Hubei province, on Oct 30 said net income in the quarter ended Sept 30 rose 40 percent to 2.26 billion yuan.
(China Daily December 19, 2008)
