labels: M&A
China invests heavily in Australian miner-Fortescue news
24 February 2009

China has increased its hunt for Australian strategic minerals by taking a 16.5-per cent stake for $770 million and may invest a further $3 billion in securities in Australia's Fortescue Metals Group.

Fortescue Metals Group said today that Chinese steel maker Hunan Valin Iron and Steel will pay $770 million (A$1.2 billion) for a 16.5-per-cent stake in the Australian iron ore miner.

Under a stand-still agreement, Valin will undertake to hold no more than 17.5 per cent of Fortescue and Valin will buy 225 million newly issued shares and buy 275 million Fortescue shares from US-based hedge fund Harbinger Capital.

"If the share subscription agreement gains the required regulatory approvals, Valin's equity in Fortescue will increase to more than 16 per cent of the expanded issue capital," Fortescue said in a statement.

Valin chairman Li Xiaowei said in a statement that Valin is "pleased to provide Fortescue with the capital necessary to underpin the development of Fortescue's impressive project pipeline, which will create new jobs and accelerate the growth of a world-class mining company."

Fortescue had appointed JPMorgan Chase & Co, Azure Capital Pty and Grant Samuel & Associates Pty as advisers to review the proposals it had received from various companies for buying some of its resources. (See: Fortescue hires JPMorgan, others to review Chinese proposals)

Fortescue also said that it is holding talks with China Investment Corporation-the country's $200 billion sovereign wealth fund for a reported $3 billion investment in securities as well as a share sale to institutions, a joint venture or direct investments.

The move by China Investment Corp is seen as the latest one by Chinese firms for Australian resource companies. China, the biggest buyer of raw iron ore, has already acquired $22 billion worth of commodity assets this year.

Rio Tinto Ltd, the world's third-biggest mining company, had signed a $19.5-billion deal Aluminum Corp of China (Chinalco) for sharing some of its mining sites, (See: Chinalco invests $19.5 billion in Rio Tinto to raise stake to 18 per cent) while Oz Minerals Ltd, the second-biggest zinc producer, has received a $2.6-billion takeover offer from China Minmetals Corp.

Fortescue wants to boost exports after a slump in sales last year, delaying expansion amid frozen credit markets and a sluggish demand. Fortescue sells all its iron ore to more than two dozen steel mills in China.

Perth-based Fortescue had planned to expand its operations in region of Western Australia through internal funds, but the global economic slowdown has thwarted those plans with the sharp decline in iron ore demand globally and the miner is falling short of A$731 million for its expansion plans.

To bring itself on level with world's three biggest producers of iron ore after Vale of Brazil, BHP Billiton and Rio Tinto, Australia's third-biggest iron ore exporter- Fortescue plans to increase its annual iron ore output to about 120 million metric tons a year from the current output of about 42 million tons.

The Valin deal needs the approval of regulators in Australia and will come under tough scrutiny since the deal is coming very close to the controversial Rio Tinto-Chinalco $19.5-billion deal, which is running into rough weather. (See: Chinalco-Rio Tinto deal may run into rough weather)

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China invests heavily in Australian miner-Fortescue