China's richest buys Australian iron ore
Updated: 2006-04-03 13:54

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 steel industry.

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.

Larry Yung Chi Kin, Chairman of CITIC Pacific
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.

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 year.

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 the country."

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 factors.

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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