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Baosteel may buy 15% stake in Aquila

By Ma Zhenhuan (China Daily)
Updated: 2009-08-29 08:46

Baosteel's plan to buy a minor stake in an Australian iron ore miner, would in no way impact the ongoing iron ore price negotiations, the steelmaker said on Friday.

The company had earlier said it plans to invest $240 million to purchase a 15 percent stake in Aquila Resources, the Western Australian-based iron ore miner, to develop its iron ore, coal and manganese projects.

"Baosteel, as a large-sized State-owned enterprise, is also a steelmaker with independent business operations, and the move will in no way impact the price-setting talks," Zhang Chi, spokesperson, Baosteel, told China Daily on Friday.

The deal, pending regulatory approvals both in Australia and China, will help Baosteel become the second largest shareholder in Aquila.

Baosteel will also have a preferential opportunity to directly invest in and co-develop most of Aquila's projects, according to an Aquila statement on Thursday. It also said that Dai Zhihao, vice-president, Baosteel, has been nominated to the Aquila Board.

In a statement filed on Friday, Shanghai-based Baosteel said the purchase has been made through standard operation in the international capital market, adding that the management has immense faith in the growth potential of Aquila assets. It said the stake buy was an "important and solid step forward" in its internalization drive.

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"The deal will enable Baosteel to further diversify the importing channels of raw materials, but it won't change the overall landscape of the iron ore trade," said an analyst from Soochow Asset Management Co who declined to be named, adding that Baosteel still needs to rely heavily on the "Big Three" iron ore miners, Australia's Rio Tinto, BHP Billiton and Brazil's Vale, for iron ore imports.

"The deal, however, would raise the bargaining power of Baosteel in negotiating with these companies on the final price," he said.

Wang Zhe, analyst, CITIC Securities, told China Daily that most of the Chinese steelmakers have been stepping up pace in the last two years to secure overseas assets like Aquila.

"Baosteel may get several million tons of iron ore annually from the deal, but it is still miniscule when compared to its huge overall imports. So in real terms the impact is relatively small," he said, adding that the move may prompt more Chinese steelmakers to acquire stakes in overseas mining firms.

Aquila said it has enough reserves to annually mine 32.5 million tons of iron ore, with production expected to begin in mid-2013.

Aquila's deposits lie in the West Pilbara iron ore belt, home to the massive mining operations of Rio Tinto and BHP Billiton, the world's second- and third-largest producers of iron ore.

Shares of Baosteel dropped 3.77 percent to close at 6.9 yuan in Shanghai on Friday.