Tianjin

Chinese firms eye Balla Balla stake

By Zhang Qi (China Daily)
Updated: 2009-12-05 07:16

Australian mineral explorer Aurox Resources Ltd is planning to sell a 50 percent stake in its A$1.3 billion ($1.2 billion) Balla Balla magnetite iron ore mine to a Chinese partner to help fund the project.

Hebei Iron & Steel Group, China's second-largest steel mill, and Tianjin-based privately owned RockCheck Steel Group, which had signed sales accords with the Perth-based company, are on the prospective list of financiers, Bloomberg reported, citing Aurox Managing Director Charles Schaus.

Both Hebei Steel and RockCheck could not be reached for their comments.

Schaus said he expects to sew up financing for the project by March next year, and will continue discussions with potential partners next week.

The sale of a 50 percent stake in the project to a Chinese partner would also be in accordance with Australia's foreign investment guidelines, he said.

The company plans to ship 6 million metric tons of magnetite iron ore concentrate a year by 2012 from the project located in Western Australia's Pilbara region. A second-stage expansion of the mine has been planned for A$720 million.

"There is no doubt that iron ore demand from China would continue to grow," Schaus said in Bloomberg's TV interview. "Our feeling is the price will increase in the future and certainly will be rock solid when we come in to the market in 2012."

Aurox plans to pipe output nearly 110 km from its Balla Balla mine site to Port Hedland in northern Western Australia for shipping.

"The project is not valued as a superior resource as the exploring cost of magnetite iron ore is higher than normal iron ore resources," said Hu Kai, an analyst with Umetal Research Institute.

Many iron ore miners are expanding their production capacities, so there might be a chance that supply would exceed demand by 2012, said Hu.

Putting aside the cost factor of the project, it still does make strategic sense for Chinese steel makers as they scout globally to augment raw material resources, he said.

Chinese investors have been enthusiastically snapping up overseas iron ore resources to break the monopoly of the Vale, Rio Tinto and BHP Billiton.

The latest in this process was Chinese steelmaker Wuhan Iron & Steel Group's $ 400 million investment for a 21.52 percent stake in Brazilian iron ore miner MMX Mineracao e Metalicos SA, followed by Wuhan Steel's $247-million investment into Australian iron ore firm Centrex, and Baosteel's acquisition of a 15-percent stake in Aquila Resources.