Australia Approves China’s Investment in Fortescue

March 31 -- China’s Hunan Valin Iron & Steel Group’s A$1.3 billion ($893 million) investment in Fortescue Metals Group Ltd. was approved by Australia with conditions to avoid conflicts of interest over prices, sales and marketing.

The investment, a 17.6 percent stake acquired through new stock and from shareholder Harbinger Capital Partners, is subject to “formal and strict undertakings,” Treasurer Wayne Swan said today in an e-mailed statement.

Chinese investments face increasing attention in Australia as the biggest metals consumer speeds up takeovers amid a global recession. China Minmetals Group today made a revised bid for OZ Minerals Ltd. after an initial offer was rejected because of security concerns. Swan has yet to approve Aluminum Corp. of China’s proposed $19.5 billion investment in Rio Tinto Group.

“It shows the door isn’t shut to Chinese investment in Australia but all deals are being closely scrutinized,” Alex Passmore, head of metals and mining research at Patersons Securities Ltd. in Perth, said today by phone. “Just because this deal has been approved doesn’t mean the other two in front of the regulators will go ahead.”

Fortescue, Australia’s third-biggest iron ore exporter, rose 2.4 percent to A$2.55 at the 4:10 p.m. Sydney time close on the Australian stock exchange. State-owned Valin is China’s ninth-largest steelmaker.

The conditions apply to Valin board nominations and cover potential conflicts of interest with sales and marketing, Treasurer Swan said. They require the company to report to Australia’s Foreign Investment Review on its compliance, he said.

“These undertakings ensure consistency with Australia’s national interest principles for investments by foreign government entities,” Swan said. “They ensure the appropriate separation of Fortescue’s commercial operations and customer interests, and support the market-based development of Australia’s resources.”

The requirements aren’t a “special arrangement” and are in line with Australian laws and the normal practices of such deals, Valin Group said in a faxed statement today. “We have complied with the commitment as we submit the application to the FIRB.”

Fortescue last month agreed to increase sales to a unit of Valin and will boost shipments from 2010. It’s seeking to boost exports from its iron ore mine in Western Australia and is facing a A$731 million funding shortfall for the expansion, Macquarie Group Ltd. analysts said in a Feb. 24 report. China is the world’s biggest buyer of iron ore.

“I have no intention of seeking any more direct equity investment,” Fortescue Chief Executive Officer Andrew Forrest said on a conference call after the announcement. “I will continue to grow Fortescue within the Chinese economic system. If there’s a requirement for any further capital then we’ll let you know about the need for Chinese participation.”

Fortescue may seek funding from China’s debt markets and capital providers, Forrest said. The company is talking to “organizations which lead the Hubei steel industry,” he said, without giving details.

Fortescue on March 24 said investment talks are still continuing with China Investment Corp., or CIC, the $200 billion sovereign wealth fund.

China may spend more than $500 billion on overseas resources investments over the next eight years to secure supplies, Eric Lilford, head of Australia mining for Deloitte Touche Tohmatsu, said March 23.

Fortescue started shipping to Chinese customers from its A$2.8 billion Pilbara iron ore project in May. It wants to expand production of the steelmaking ingredient from its mines in Western Australia that supply Chinese steel mills.

The company sold shares in December to pay bills. An expansion to boost capacity at its Cloud Break mine to 80 million metric tons from 55 million tons may cost A$2.5 billion, JPMorgan & Chase Co. said in a Jan. 30 report.

“It’s a positive for the company as its funding requirements over the next half are now met after looking fairly precarious,” Paterson’s Passmore said.

(Bloomberg)

China's WISCO buy stake in Consolidated Thompson

TORONTO - Consolidated Thompson Iron Mines Ltd said on Monday that Chinese steel maker Wuhan Iron and Steel Corp (WISCO) has agreed to make a $240 million in the Canadian mining company in return for a 19.9 percent stake in the company.

Numerous Chinese companies have been acquiring stakes in foreign mining companies, in a bid to secure access to metals needed to fuel the country's rapid internal growth.

Chinese metals group Chinalco has just arranged a $21 billion loan to finance a major investment in Rio Tinto , while China's Minmetals has made a $1.7 billion bid for Australian miner OZ Minerals Ltd.

The letter of agreement between Consolidated Thompson and WISCO provides for WISCO to make a total investment in Consolidated Thompson of $240 million and in return Consolidated Thompson will issue 29.7 million of its common shares to WISCO.

This will represent 19.9 percent of Consolidated Thompson's outstanding shares post the transaction.

In addition, WISCO will receive not less than a 25 percent interest in a newly incorporated company that is to be established to operate the Bloom Lake mine, and will commit to purchase a similar percentage of iron ore production over the life of the mine.

Furthermore, WISCO will also be entitled to other long-term off take rights at fair market value from both the initial production and future expansion of the Bloom Lake project, as well as from Consolidated Thompson's Lamelee and Peppler Lake projects.

"This partnership will also strengthen Consolidated Thompson's potential to expand from the current mine plan of 8 million tons per year to 16 million tons of annual production of iron ore," said Consolidated Thompson's Chief Executive Richard Quesnel, in a statement.

(Reuters)

Australia Blocks China Minmetals’s Purchase

HONG KONG — Citing national security, Australia blocked on Friday one of several acquisitions China is seeking in the country’s natural resources sector, a move that may stoke concerns about rising protectionist tendencies around the globe.

The decision to block the purchase of OZ Minerals, a mining company, by state-owned China Minmetals Corporation, coincides with a heated debate concerning a much larger investment that the Chinese metals company Chinalco is planning to make in the British-Australian mining group Rio Tinto.

Two weeks ago, Chinese antitrust authorities blocked a move by Coca-Cola to take over Huiyuan Juice Group, a Chinese juice manufacturer, for $2.4 billion — a decision that caused widespread concern about China’s attitude to foreign takeovers of local companies.

Australia’s treasurer, Wayne Swan, said on Friday that he decided to block the OZ Minerals transaction because the company’s Prominent Hill gold and copper mine, its core asset, is near a sensitive military facility.

“The government has determined that Minmetals’ proposal for OZ Minerals cannot be approved if it includes Prominent Hill,” Mr. Swan said in a statement.

He added that discussions were continuing “in relation to OZ Minerals’ other businesses and assets, and the government is willing to consider alternative proposals relating to those other assets and businesses.”

The chief executive of OZ Minerals, Andrew Michelmore, said the company and Minmetals were discussing potential changes to the deal and would make an announcement “as soon as possible.”

Battered by falling earnings as raw materials have plunged in line with the slowing global economy, both OZ Minerals and Rio urgently need the cash injection that the Chinese companies’ investments represent.

OZ Minerals is scheduled to repay more than $900 million in debt next week, and must now renegotiate the deal or obtain a loan extension.

Analysts on Friday said it was unclear whether Minmetals would proceed without Prominent Hill, which is considered a core asset.

In a statement issued in Australia, Minmetals said Friday it wanted to continue talks: “Our focus is on delivering an agreed solution to OZ Minerals that meets national interests, can satisfy lenders, deliver stability to employees and protect existing operations.”

Whatever happens, Friday’s announcement will fuel the debate about a rise in global protectionism — even if Canberra’s rejection was due to security concerns rather than business protectionism.

A recent flurry of bids for some of Australia’s most prized natural resource assets has caused public and political unease in the country, as well as, in the case of the proposed Chinalco transaction with Rio, angry protests from shareholders.

At the same time, however, China is the main buyer of the natural resources that form the bedrock of Australia’s economy, making the approval of such deals politically sensitive.

Chinalco, or Aluminum Corporation of China, as it is officially known, last month proposed investing $19.5 billion in the miner. That deal, currently being evaluated by Australia’s antitrust authorities, would be the biggest foreign investment to date by a Chinese company and increase its leverage in pricing negotiations for iron ore from Rio’s mines.

The attempted OZ Minerals takeover, and a separate bid by the Chinese steel manufacturer Hunan Valin Iron for a 17.5 percent stake in Fortescue Metals Group, another Australian company, are much smaller — $1.7 billion in the case of OZ Minerals.

But all three transactions, each announced in the last few months, reveal China’s desire to take advantage of the recent drop in commodities prices to secure its hold over natural resources.

(NYT)

China Bought Almost Half of Australia’s Mineral Exports in 2008

Feb. 23 -- Australia sold almost half of its mineral exports to China last year as demand rose from steelmakers.

China bought A$22.534 billion ($14.5 billion) worth, or 44 percent, of the A$51.36 billion of minerals Australia exported last year, the Department of Foreign Affairs and Trade said in an e-mailed statement.

Economic growth in Australia, the biggest exporter of coal and iron ore, will slow in the coming year as export earnings decline 20 percent, the central bank says. Australia’s biggest trading partners in the year ended June 30, 2008, were Japan, China and the U.S.

Demand for minerals in China is falling as it cuts the amount of shipments to the U.S. and Europe, both in economic recession. China’s exports in January declined by the most in almost 13 years.

(Bloomberg)

Alcoa to partner with China's Henan Province

NEW YORK — US-based Alcoa on Thursday announced a "strategic cooperation agreement" with Henan Province in China on primary and fabricated aluminum products.

The agreement was signed Wednesday at Alcoa?s New York headquarters by company president and chief executive Klaus Kleinfeld and Governor Guo Gengmao of Henan.

"By combining the strengths of Henan Province, an area with abundant energy and natural resources, and Alcoa's technology and market leadership, we are aiming to establish a globally competitive base for aluminum production in China," said Kleinfeld.

Alcoa "will work with Henan as a strategic ally on identifying value-adding projects for alumina, primary aluminum and aluminum fabrication facilities in the province," a company statement said.

The Henan government "will provide the necessary support for resource allocation, energy supply, development plans and policies needed to make Henan a globally competitive base for aluminum production."

Henan is located in central China and is the country's largest producer of nonferrous metals.

The news came as Alcoa said it was pulling out of a joint venture with China's state-owned Chinalco that had been established to buy a stake in Anglo-Australian mining giant Rio Tinto.

Alcoa will receive 1.02 billion dollars for the stake plus dividends from the venture called Shining Prospect.

(AFP)

Will China break the Japan mould after Rio deal?

SYDNEY - With a single 13 billion pound deal, China will acquire a sizeable chunk of the raw materials it needs to grow its economy, and state-owned Chinalco grows from a provincial powerhouse to a diversified global player.

For some, that rang alarm bells over the risk of China Inc. holding sway over the world's second-largest mining house at a time when it is fast becoming the firm's biggest customer.

But if Japan's precedent set four decades ago is any guide, one thing Thursday's deal won't guarantee is cheaper prices for the copper, iron ore and bauxite it needs to grow its economy.

The question now, say some analysts, is whether China sticks with the Japanese model or seeks to break the mould, becoming a much more powerful force on the global stage.

In the deal, which still requires regulatory approval, Chinalco will pay 5.1 billion pounds to potentially double its share stake in Rio Tinto to 18 percent and another 8.7 billion pounds to buy minority stakes in a suite of assets, including its biggest iron ore mine, which already sells half its output to China.

For full details of the assets click on:

Wrapped in the veneer of a corporate deal that gives Chinalco an upstream presence and will help Rio pay down its whopping debt burden, the political significance is clear as the world's biggest minerals consumer seeks to secure industrial growth.

"If anything it's a supply issue. China's got the growth potential going forward and that means keeping raw materials coming in," said DJ Carmichael & Co analyst James Wilson.

It's a strategy pursued most clearly by China's oil companies since five years ago and more recently by smaller-scale investments in the mining sector, particularly in Australia.

As China enters into bigger deals, its precedent stretches back to Japan's investment of the 1960s in Australian iron ore and coal mines, in deals that initially raised questions about national sovereignty before being accepted as business as usual, at a time when Japan's post-war economy was booming.

PART AND PARCEL

"It's important to recognise that joint ventures have been part and parcel since the 1970s, '80s and '90s," Rio Chief Executive Tom Albanese told reporters on Thursday.

A 50-50 alliance between BHP Billiton (BHP.AX)(BLT.L) and Japanese trading house Mitsubishi (5711.T) called BMA is already Australia's largest coal miner and exporter, and the world's largest supplier to the seaborne coking coal market.

Also, a third of Rio's giant Robe River iron ore mine is owned by Mitsui (5706.T), with Nippon Steel (5401.T) holding 10.5 percent and Sumitomo Metal Australia 3.5 percent.

"Chinalco is exactly the same as BHP and BMA ... People have got short memories," said metals and mining Australia head analyst for Deutsche Bank Peter O'Connor.

Despite those investments, coking coal and iron ore prices have skyrocketed through most of the past decade -- something Japanese investors have done little to impede.

That suggests Chinalco will be unlikely to win its domestic cousins Baosteel (600019.SS) and other mills preferential treatment on Rio's iron ore supplies, driving a wedge between Rio and rivals BHP and Vale (VALE5.SA), as some had speculated.

So far, Rio, BHP and Vale, which together account for about a third of world iron ore, have profited hugely from driving a hard bargain with Chinese steel mills. While Chinalco may now have better access to market insight, it won't carry much clout arguing for lower prices from the majority shareholders.

"To suggest Chinalco would undermine Rio's revenue from iron ore to help out the Chinese steel industry is a stretch, if only because it would undermine its investment in Rio in the first place," said a mining analyst in Perth who asked not to be named.

NOT QUITE

Others argue China's motives are more predatory, and that Beijing-backed companies are less likely than Japan's more independent operators to find satisfaction in minority or passive stakes, given long-term double-digit growth projections for its economy.

The Rio investment brings with it two board seats and no guarantee Chinalco will not pursue a larger stake later.

"The Chinese have a long-term plan that differs from old mining houses so there's a question about influence and control," said Warren Staude, investor adviser at Taurus Funds Management.

Through Aluminium Corp of China (Chalco), Chinalco is the largest producer of alumina and primary aluminium in China, but it hasn't made much of a splash anywhere else.

Rio ships a lot, but not all, its iron ore to Chinese steel mills, its copper turns up in dozens of countries and its aluminium is produced and sold almost universally.

It has amassed nearly 28 billion pounds in debt since 2007 by buying Canada's Alcan at the top of the commodities market, which has since crashed, and must repay 12.7 billion pounds in the next 18 months.

(Reuters)

China steps up iron ore hunt with Centrex deal

SYDNEY, Dec 18- China's steel industry extended its reach into Australia's rich iron ore mines on Thursday as No. 3 mill Wuhan Iron & Steel (Group) Co agreed to buy half of five projects owned by Centrex Metals Ltd for $126 million.

Wuhan, an integrated steelmaker that already operates iron ore mines in China, will also pay an additional A$9.7 million for a 15 percent stake in Centrex. Its rival Baotou Iron & Steel Group already 10.12 percent of Centrex, which owns a number of prospective mines but does not produce any ore now.

The deal shows that steel mills in the world's biggest producer are renewing their drive to secure access to their raw materials, despite a massive downturn in the global steel sector and collapsing prices brought on by the financial crisis.

The sudden tumble in commodity prices is also expected to bring mills a bit of relief on iron ore contract prices, negotiations over which are now underway.

"We expect there to be a price reduction for next year of something of the order of 15-20 percent," Centrex Managing Director Gerard Anderson told Reuters.

In addition to investing up to A$180 million ($126 million) for a half interest in iron ore mining projects owned by Centrex, Wuhan will buy a 15 percent stake worth about A$7.75 million based on Centrex's current market value of around A$55 million.

Centrex shares rose 2.2 percent to A$0.23 on Thursday. Since Dec. 1, the stock has steadily risen from A$0.13.

In 2008, miners secured increases of between 65 percent and 80 percent in term prices, helped by now-outdated forecasts of strong demand well into 2009.

Most forecasters are now calling for prices to go down next year for the first time in more than half a decade. [ID:nL0451137]

In Australian dollar terms, Anderson said he did not expect to see a year-on-year decline in prices at all, given the sharp fall in the U.S. dollar-Australian dollar exchange rate.

"The production cuts from Vale and Rio Tinto in particular, and certainly the postponement or delay of most other would-be aspirants for several years as a consequence of the economic climate will eventually make its way through the system," he said.

"Effectively, up to 300 million tones of iron ore has been taken out of the seaborne trade," Anderson said.

The pact with Wuhan comes as Chinese companies renew their interest in Australia's mining sector following a hiatus that coincided with a recent tumble in commodities markets.

"There is a recognition that while commodities such as iron ore are down right now, the long-term prospects for the sector are positive," Patterson Securities analyst Andrew Harrington said.

This month, Shenzhen Zhongjin Lingnan Nonfemet 000060.SZ, China's third-largest zinc producer, offered A$45.5 million for 50.1 percent of Australia zinc miner Perilya L.td.

There is also speculation that Baosteel is interested in iron ore miner Fortescue Metals Group Ltd. Baosteel is Fortescue's biggest customer.

Centrex holds 15 hematite and magnetite iron prospects across South Australia state's Eyre Peninsula slated for development starting in 2010.

Hematite type ore is fed directly to steelmaking blast furnaces, while magnetite must first go through a smelting stage.

Both sides expect to seal the agreement by March 17, 2009 pending foreign investment clearance from regulators.

Centrex's plan is to link development of its iron ore mines with construction of a nearby export port, capable of handling Capesize bulk carriers similar to Australia's main western iron ore export terminals.

(Reuters)

Facing distress, miners eye China "white knights"

HONG KONG - In metals and mining, Chinese companies are seen today as much as saviors in a time of distress as cash-rich buyers of natural resources.

Not long ago, the industry saw China more as a willing investor, ready with cash to buy minor stakes in companies and their mines ... but the image has shifted more to 'white knight' than 'strategic partner'.

A Chinese firm this week offered to buy control of struggling Australian zinc miner Perilya, and the Chinese are also pursuing another zinc miner, Oz Minerals, which is scrambling to refinance its debt. And mining giant Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz)(RIO.L: Quote, Profile, Research, Stock Buzz), saddled with around $30 billion in debt, is trying to find buyers for some of its assets.

All eyes are on China.

Few companies will admit to being in distress, but for mining groups across the globe, the environment looks increasingly tough. Commodity prices have slumped, costs are rising and revenues falling. Enter cashed-up, government sponsored Chinese companies that appear ready to take more control.

"It's a nice marriage between cash-strapped, mid-cap resource firms and cash-rich, state backed Chinese firms -- it's real good timing," said Larry Grace, analyst at Kim Eng Securities.

"The number of these deals in 2009 will depend on how many of them foreign governments will allow."

A 'white knight' typically rescues a company from distress, a bad deal, an agitating shareholder, or all three.

There are plenty of obstacles, however, that could prevent China from being miners' distressed asset buyer of choice.

For one, China has indicated that, while it's interested in investing abroad, it's happy to be patient in the current environment.

Chinese mining and steel companies are also feeling the economic pinch, though a state-run company has government cash if needed.

Also, any Chinese tie-up carries political baggage.

Australia has long worried that a Chinese foothold in the resource-rich country will result in wages being slashed, and there are concerns that Chinese-controlled mines would lower prices in order to sell their output more cheaply to Chinese state-owned customers.

In 2005, U.S. politicians thwarted CNOOC's (0883.HK: Quote, Profile, Research, Stock Buzz) (CEO.N: Quote, Profile, Research, Stock Buzz) acquisition of California-based Unocal.

But politics can take a back seat if a company is on the brink of collapse.

(Reuters)

Sinosteel to proceed with Midwest takeover

SYDNEY, Australia — Chinese steelmaker Sinosteel Corp. has taken control of 98 percent of Midwest Corp. and will proceed with compulsory acquisition of the Australian miner, Midwest said.

In a brief statement Wednesday, Midwest said Sinosteel would recommend de-listing the company from the Australian Securities Exchange. The conclusion of the deal marks the first successful hostile takeover of an Australian firm by a Chinese entity.

The exchange released a notice from Sinosteel to Midwest that said the Chinese company had gained a 98.52 interest on Monday, after U.S. hedge fund Harbinger Capital agreed to the Chinese firm's offer for its 15.2 percent stake.

Also Monday, major shareholders Murchison Metals Ltd. and Armadale Offshore Inc. accepted Sinosteel's takeover bid, giving up their 9 percent and 12 percent stakes in Midwest.

Sinosteel launched a $1.36 billion bid for Midwest in December last year, and gained a controlling stake in July.

Sinosteel wants to secure access to Midwest's Australian iron ore assets to serve China's booming steel industry, which is dependent on global mining giants Rio Tinto Ltd. and BHP Billiton Ltd. China's mills have recently had to agree to price increases of up to 96 percent for iron ore from the two.

Midwest operates a mine in Western Australia state with a modest annual production of 1.1 million tons. It is developing a new iron ore project that will produce 16.5 million tons a year, also in Western Australia.

Midwest shares resumed trading Thursday at 6.36 Australian dollars after being placed in a trading halt Tuesday. At midday, the shares were down 1.73 percent to A$6.25.

(AP)

ArcelorMittal signs JV pact with China

World's largest steel maker ArcelorMittal today said it has signed a joint venture agreement with China's Hunan Valin Steel Group for the production and sale of electrical steel.

In a statement, ArcelorMittal said the JV would build cold rolling and processing facilities for the production of non-grain oriented (NGO) and grain oriented (GO) electrical steels.

"The total investment is estimated at RMB 6.5 billion (about 947 million dollars), aiming for an annual production of 400,000 tons non-grain oriented and 200,000 tons grain oriented steel," the statement said.

The new joint venture 'Valin ArcelorMittal Electrical Steel Co., Ltd' has a registered capital of RMB 2.6 billion (about 378 million dollars) and both parties would have 50 per cent stake.

Further, Valin Liangang, a subsidiary of Valin Steel Tube & Wire, has signed a supply agreement with the JV.

"Valin continues to target high-end flat rolled demand, supported by the technical platform set up with ArcelorMittal and adjusting its product mix, developing its own core technical and innovative capabilities.

"Electrical steel is the latest addition, following high end heavy plate and automotive steel products," Valin Groups Chairman LI Xiaowei said.

Commenting on the JV, Valin Liangang General Manager ZHENG Baiping said: "Our Electrical steel JV will be ready to start production in 2010 and will supply competitive high end products to a high requirement electrical steel market."

(Business Standard)

China's Zijin Mining invests abroad

HONG KONG, July 29 - Zijin Mining , China's top listed gold producer, plans to invest 1 billion yuan ($146 million) in a gold mining project in Tajikistan and awaits approval for another in the Philippines, as it expands abroad to ride sky-high prices.

Zijin is also seeking new projects to mine silver and zinc in Tajikistan and is in talks to buy a gold mine in Africa. But the company said it is becoming more selective after adding 11 exploration licences and seven mining licences in the past year, amid concerns metal prices may start turning around soon.

The price of gold , which accounted for 64 percent of Zijin's total sales in the first six months of this year, has risen by nearly $100 per troy ounce, or 12 percent from the beginning of the year, to $930.25 a troy ounce on Tuesday.

Zijin reported a 45 percent rise in first-half profits, to 1.74 billion yuan ($255 million).

"We will consider projects only if they can create more value from the current values as prices are already high. We will not buy regardless of prices," Chairman Chen Jinghe told Reuters on the sidelines of an investor conference on Tuesday in Hong Kong.

"For now, it is hard to predict the outcome of the African project as we are quite apart on the price."

But Zijin is keen on projects in Tajikistan, where the government is friendly to Chinese firms. It plans to inject more funds to upgrade the technology and boost output at its existing gold project in the country, which includes two mines.

(Reuters)

ArcelorMittal in talks with Angang Steel

ArcelorMittal, the world’s biggest steel producer, has held informal discussions with Angang Steel about working with China’s second-largest steel company in an effort to extend its presence in the country.

Lakshmi Mittal, the Indian billionaire chief executive and main owner of ArcelorMittal, proposed buying a near 25 per cent stake in Angang to Zhang Xiaogang, Angang’s chairman, in a private meeting just over two months ago.

Although financial terms were not discussed, a 25 per cent stake in Angang would cost ArcelorMittal at least $5bn, according to Angang’s current market valuation.

While Mr Zhang turned down Mr Mittal’s suggestion that ArcelorMittal should be allowed to take a 20-30 per cent stake in the government-controlled company, he told the Financial Times he would be keen in principle to allow the Luxembourg-based company a much smaller shareholding in Angang of 1-2 per cent. He was also open to co-operating with ArcelorMittal, for instance in new steelmaking or mining projects.

“We [Angang and ArcelorMittal] can work together. We have similar ideas,” Mr Zhang said in an interview at Angang’s headquarters in Anshan, northern China.

Mr Zhang said he thought Angang could gain useful international experience through working with ArcelorMittal, perhaps through both companies taking an equity stake in a stand-alone production venture.

Mr Mittal said: “ArcelorMittal has made no formal proposal for any kind of joint project involving Angang Steel. However, I had an informal discussion with Mr Zhang about various possibilities. As part of this, I tossed around a number of ideas.

“This is similar to the discussions I have with many steel companies.”

Angang is listed on the Hong Kong stock exchange, with a controlling shareholding of 67 per cent owned by Anshan Iron and Steel, a Chinese government company.

Last year, Angang produced 16m tonnes of steel, putting it in second place behind Baosteel, the industry leader in China with an output of nearly 30m tonnes annually.

Mr Mittal’s overture to Mr Zhang is part of his long-term effort to become a large force in the Chinese steel industry, which is by far the world’s biggest but in which participation by foreign groups is subject to strict controls by Beijing.

Beijing has a general policy of not allowing majority ownership of steel companies by non-Chinese businesses.

ArcelorMittal currently has a 32 per cent stake in Hunan Valin Tube Steel & Wire, a leading Chinese steelmaker. It also is poised to take control of China Oriental, another China-based steel company, through a series of stockmarket transactions.

Last year ArcelorMittal accounted for 13 per cent of world steel production outside China, but only 0.7 per cent of steel production from China.

(FT)

De Beers lifted by demand from China, India

• to help offset U.S. sales woes in 2008

Diamond producer De Beers has said more demand for bigger stones from booming China and India will help offset US sales woes this year.

De Beers revenues dipped 3% during 2007, coming in at 6.8 billion US dollars (£3.5 billion). Underlying earnings grew 14% to 483 million US dollars (£245 million).

The stone producer, which is 45% owned by mining giant Anglo American, said demand for its rough diamonds remained healthy during 2007 but sales had suffered amid price falls at the start of the year.

Diamond jewellery sales were likely to be up 3% overall in 2007, De Beers added, with strong growth in China, India and the Middle Eastern markets offsetting a "disappointing" Christmas season in the US.

De Beers said: "The outlook for 2008 is tempered by a high level of uncertainty over world market conditions. "

The economic conditions in the US could continue to impact consumer diamond jewellery sales through the first half particularly at the lower end.

"Nevertheless, we expect strong demand from China, India and the Middle East to sustain pricing for larger and better quality diamonds."

Shares in owner Anglo American were up more than 3%.

(The Associated Press)

Anglo in coperation with China Development Bank

• it was the first stage of an expanding relationship

ANGLO American had reached an agreement with China Development Bank to develop projects in China, Africa and other regions, Anglo spokesman Pranill Ramchander said yesterday.

The memorandum of understanding was signed in November. It was the first stage of an expanding relationship and no particular projects, regions or minerals were under immediate consideration, he said.

Anglo, one of the world's largest natural resource groups, has coal operations in Australia, Colombia, SA and Venezuela . It has a relatively small toehold in the Chinese mining industry, owning an aggregates quarry outside Shanghai, an interest in a coal-to-liquids project and a stake in Shenhua Energy, the coal mining group.

Cynthia Carroll, Anglo’s chief executive, said that her group was actively looking for more assets in China and that she hoped the agreement with CDB would lead to “a productive relationship lasting many years”.

As well as helping Anglo to break into China’s mining sector, the deal could give the Chinese state greater access to mineral resources in Africa, where it is trying to increase its influence.

Chen Yuan, CDB governor, said: “Anglo American is one of the world’s leading resources groups. With the establishment of this strategic alliance, we have become much better positioned in doing business in the natural resources industry. ”

China Development Bank plays an important role in financing China's medium- and large-scale priority projects in infrastructure, basic industries and the pillar industrial sectors, and supporting the overseas investment projects of Chinese enterprises.


In November 2006 the CDB funded the purchase of a 1 per cent stake in Anglo by Larry Yung, one of China’s richest men. His vehicle, China Vision Resources, bought the stake for about £388m from South Africa’s Oppenheimer family, founders of Anglo. Mr Yung is still an Anglo shareholder, and his stake remains less than 3 per cent so does not need to be disclosed.

It is understood that the CDB has offered Chinalco $120bn (£61bn) of funding if it does decide to mount a full takeover bid for Rio Tinto.

(FT, Business daily)

RusAL parters with CPI for projects in China and Guinea

• RusAl will hold a stake of up to 49 percent in the Chinese aluminum smelter, and CPI will hold up to 49 percent of the Guinea bauxite-alumina complex

United Company RusAl, the world's largest aluminum producer, said Monday that it would partner with China Power Investment in building a 500,000-ton smelter in western China and a bauxite and alumina complex in Guinea.

The deal gives RusAl, majority-owned by billionaire Oleg Deripaska, a foothold in China's fast-growing aluminum market, already the world's top consumer and producer of the light metal used in drink cans, cars and construction.

"It is important that RusAl fixes its presence in China, which is the largest aluminum market," said Alexander Pukhayev, metals and mining analyst for Deutsche Bank in Moscow.

RusAl said in a statement that it had signed a memorandum of understanding with CPI, a major Chinese energy firm, giving it 49 percent of a smelter in Qinghai province that will have capacity to produce at least 500,000 tons per year of aluminum.

The smelter will secure its electricity supply from CPI's hydropower facilities on the Huang He River.

The two projects will create a vertically integrated aluminum-production complex. RusAl will hold a stake of up to 49 percent in the Chinese aluminum smelter, and CPI will hold up to 49 percent of the Guinea bauxite-alumina complex, which will have capacity of up to 2.8 million tons of alumina per year.

RusAl and CPI will finance the projects in proportion to their ownership and will create a working group to conduct an audit and feasibility study. RusAl said the study was slated for completion by mid-2008 and the project could start in 2009.

Further financial details of the transaction were not disclosed.

"Joining forces with one of China's largest energy corporations is an important move in realizing [RusAl's] strategy of strengthening the company's presence in China," RusAl chief executive Alexander Bulygin said.

United Company RusAl was created in March 2007 through the merger of Deripaska's Russian Aluminum, smaller domestic rival SUAL and assets belonging to Swiss-based commodities trader Glencore.

The company accounts for 12 percent of global aluminum output and 15 percent of intermediate product alumina, a white powdery substance made from bauxite.

RusAl does not currently own any smelters or alumina refineries in China. It does, however, own a plant in Shanxi province that produces cathodes, components of the electrolytic cells used in aluminum production.

In Guinea, a country rich in bauxite, RusAl owns mining firm Compagnie des Bauxites de Kindia as well as the Friguia alumina refinery. It also owns the Dian Dian bauxite deposit.


(Reuters, AP)

Chinalco and Alcoa take a 12% stake in Rio Tinto

• the purchase is the largest Chinese investment overseas.
• the move could stall efforts by the world's largest miner, BHP Billiton, to buy Rio.

China has teamed up with US aluminium giant Alcoa to buy a 12% stake in Anglo-Australian miner Rio Tinto for $14.05bn (￡7.05bn). The state-owned Aluminium Corp of China (Chinalco) said the purchase was the largest Chinese investment overseas.

The move could stall efforts by the world's largest miner, BHP Billiton, also Anglo-Australian, to buy Rio.

Alcoa and Chinalco said they don't currently intend to make an offer for the whole of Rio Tinto.
But they said they reserved the right to do so if Rio received a firm bid from a third party.

The two companies paid a total of $14.05bn for the holding through a Singapore-based entity, with Alcoa contributing up to $1.2bn.

"We have long believed that Rio Tinto has a world-class portfolio of assets and is very well positioned to prosper in the current mining cycle," said Alain Belda, Alcoa's chairman and CEO said in the statement.

Blocking move?
Analysts said the two aluminium producers want to block a combined firm that would control a third of the iron ore market and dominate markets for copper, aluminium and coal.

"The Chinese are trying to stop the deal going through. I'm sure that's the reasoning behind this," said Tom Gidley-Kitchen an analyst at Charles Stanley.

Chinese state media said the deal was in Chinalco's and Rio Tinto's interests.

"It is a strategic stake for Chinalco becoming a multinational and multi-metals company," Chinalco said in a statement.

Deadline looms
The move comes just before a 6 February deadline for BHP to make a firm offer for Rio or shelve plans for six months.

"On its own, 12% may not be enough to block BHP if it really wants to go after Rio, but it certainly can throw a wrench into its plans," said James Wilson, an analyst at DJ Carmmichael & Co.

Rio has so far spurned BHP's overtures, saying it fundamentally undervalued it and its growth prospects.

London and Melbourne-based Rio Tinto had asked the UK's Takeover Panel to force BHP to formalise its all-share bid, worth around $140bn.

In November BHP proposed a offer that involved one Rio Tinto share to be swapped for three shares in BHP.

Rio said the investment by Alcoa and Chinalco reinforced its view that BHP's offer was too low.
"It may make the probability of BHP providing a cash alternative or cash component more probable. It certainly puts some pressure on BHP," said Mr Gidley-Kitchen.

BHP declined to comment.

Rio shares surged on the news, gaining 10.5%, or 520 pence, to 5476p.

(BBC)

BHP Billiton in iron ore supply pact with China's Baosteel

• to triple BHPB's iron ore production to 300mln tons a year in keeping pace with China's demand.

BHP Billiton said on January 30 it had signed an agreement to supply China`s Baoshan Iron & Steel Co (Baosteel) with iron ore, a key ingredient in steelmaking.

"With this new contract, Baosteel will be supplied from April 2008 with 10Mt of iron ore each year for 10 years at a price to be mutually agreed year by year," Melbourne-based BHPB said in an e-mailed statement.

The agreement helps BHPB secure customers, as it plans to almost triple iron ore production in Australia to 300 million tons a year by 2015, from 108 million tons.

"This is a significant quantity of iron ore and highlights our interest in keeping pace with high demand in China during a time when supply is tight,'' BHPB's Tom Schutte, president of marketing, said in the statement.

China has accounted for 65 percent of global growth in steel production in the past 10 years, and is now four times the size of the U.S. steel industry, BHPB Billiton said.

Baosteel, China's biggest steelmaker, plans to boost production capacity to 80 million tons a year by 2012 from an estimated 28 million tons last year, closing the production gap on the top global mill, ArcelorMittal.

The company would require 120 million tons of iron ore to meet the production target, according to Ma Haitian, an analyst with Beijing Antaike Information Development Co. Baosteel used 42 million tons of ore in 2006.

Spot iron ore prices rose 140% last year, exceeding US$100/t, reported by Credit Suisse Group. "The steelmakers have a sharp discrepancy with the miners on agreeing prices, Contract prices has tripled in five years to a record. " China Iron and Steel Association Vice Chairman Luo Bingsheng said.

BHPB is the world's third largest iron ore producer behind Brazil's Vale and Rio Tinto. It's partners are Itochu Minerals & Energy of Australia Pty, Mitsui-Itochu Iron Pty, Mitsui Iron Ore Corp.. BHP's share is 85 percent.

BHPB has proposed a merger with Rio Tinto, in part to control most of the mining operations in Australia's Pilbara region. Rio Tinto has so far rebuffed the proposal.

(Bloomberg, Reuters)

Sinosteel takes 92 pct stake in Zimbabwe largest chrome firm

BEIJING - Sinosteel Corp, China's the country's biggest chrome importer, said it acquired 92 pct stake in Zimasco Consolidated Enterprises Limited (ZCE), the Mauritius-based holding company of Zimbabwe's Zimasco.

Under the deal, Sinosteel has the option to buy the remaining 8 pct of ZCE over the next two and a half years, the company said in a statement.

Financial details were not provided.

Zimasco is Zimbabwe's largest chrome producer with annual refined chrome output of around 592,000 tons.

The acquisition further consolidates Sinosteel's strategic status in the mining sector in Africa after a deal with South Africa's Samancor, the Chinese firm said.

In November last year, Sinosteel signed an agreement to pay more than 200 mln usd for a 50 pct stake South Africa's Samancor Chrome Co.

Samancor has estimated chrome resources of 70 mln tons.

see also at http://en.sinosteel.com/