Chinese conglomerate CITIC Pacific will buy two
Australian iron-ore mining companies for US$415 million and devote US$2.5
billion more in capital spending on its first overseas project to boost China's
The steel-to-property giant -- headed by China's mainland richest
businessman, Larry Yung Chi Kin -- said on Friday it had struck an
agreement with Australia's Mineralogy Pty Ltd to buy Sino-Iron and Balmoral
Iron, both of which mine iron ore in Western Australia.
Both are developing
projects in the Pilbara region that would entail capital spending -- the
building of plants, mining facilities and so on -- to the tune of US$2.5 billion
in total, executives said.
Larry Yung Chi Kin,
Chairman of CITIC Pacific
CITIC Managing Director Henry Fan told reporters that the first mine should
start up in 2009. Both firms' mines together hold an estimated 2 billion tonnes
of reserves that could support a quarter-century of production.
Most of the ore would eventually be shipped to China, whose steel makers are
now locked in protracted negotiations with global miners from CVRD to BHP
Billiton to try and secure the lowest-possible prices for iron ore this
Australian miners from BHP to Rio Tinto are watching closely a trip
down under by China's Premier Wen Jiabao. Wen arrived on Saturday in
Perth, the capital of the iron-ore producing state of Western Australia.
"It is understood that there will be a price rise but talks are still going
on. It's expected that iron ore prices would keep rising, and that's why we
entered this project," Mr Fan said.
Calling the agreement a
country-to-country, as opposed to a company-to-company, deal, Mr Fan said
Beijing would arrange for a Chinese iron and steel manufacturer to take 50
percent of the entire project. Fan did not name the company, saying that
decision lay with China's central government.
"China is such a rapidly
developing country, and natural resources are needed," Mr Fan said.
"It would like to see companies go outward and secure long-term resources for
CITIC Pacific would manage the projects. As part of the deal, CITIC Pacific
would also get options to buy up to an additional 4 billion tonnes of magnetite
ore resources from Mineralogy within 10 years. It would pay about US$200 million
for every 1 billion tonnes of ore.
The two companies to be acquired would pay royalties to Mineralogy, their
erstwhile owner, on a quarterly basis, at a rate of A30 cents per tonne of ore
mined plus an additional rate to be calculated based on production and other
CITIC Pacific expects to take about 8 million tonnes of ore every year from
the project for its special steel division.
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