By Chuin-Wei Yap and Alex MacDonald
One of China's largest iron-ore trading companies will take a
$990 million stake in African Minerals Ltd.'s (AMI.LN) Sierra Leone
iron-ore mine, signaling the world's largest steel-producing nation
is still looking for global metal assets amid a recent commodity
slump.
African Minerals on Thursday said Tianjin Minerals and Equipment
Group Corp., also called Tewoo, agreed to pay cash for an effective
16.5% stake in the miner's Tonkolili asset.
The investment, which values Tonkolili at $6 billion, marks the
Africa-focused company's second major deal with Chinese partners in
as many years. African Minerals, listed and based in London, last
year secured a $1.5 billion investment from Shandong Iron &
Steel Group to finance its operations, which produce 20 million
metric tons a year.
Smaller miners around the world have been struggling to secure
financing for their projects. Iron-ore prices fell earlier this
year due in part to slower economic growth in China, the world's
largest consumer of the steelmaking ingredient.
For China, Tewoo's impending acquisition marks a return to a
market where it has struggled to find a foothold in a series of
bids to secure overseas iron-ore assets. Major acquisitions,
including the $8 billion Sino Iron project 900 miles north of Perth
and the $3 billion magnetite project in Western Australia's Cape
Lambert, have run into years of delays or been suspended altogether
amid chronic cost overruns.
Last December, a senior official at the government's top
economic-planning agency, the National Development and Reform
Commission, said at a closed-door conference that while more than
$10 billion has been spent on China's overseas iron-ore mining
investments, few of these projects have begun operation, the
official Xinhua news agency reported.
But while official caution over such projects has risen, so has
the country's fundamental appetite for steel. Iron-ore imports rose
to a record monthly volume of 73 million tons in July, inching down
only slightly in August to this year's second-highest monthly
level, according to government data. China depends on imported ore
for 60% of its steelmaking.
Crude steel production has similarly stayed at elevated levels
this year, and the NDRC estimated the country is likely to post
record output volume of 780 million tons this year.
State-led infrastructure construction, including railway
investments, and inventory restocking are behind a recent uptick in
China's steel demand.
"Construction investment and robust demand for automobiles
should keep commodity demand robust and assist with the running
down of metal stockpiles," National Australia Bank economist James
Glenn said.
Iron-ore import prices have staged a recovery, rising 19% from
the year's low point in late May to around $132 a ton for shipments
delivered to China's northeastern port of Tianjin. Prices have
begun to soften in the last month as Chinese mills restock, but
remain relatively resilient, according to data from the Steel
Index.
Meanwhile, Chinese state-owned metal giants continue to mull
overseas assets. China Minmetals Corp. has said it is considering a
bid for Rio Tinto PLC's (RIO.AU, RIO.LN) $4 billion Canadian
iron-ore operations. Jiangxi Copper Ltd. (0358.HK, 600362.SH)
Minmetals and Aluminum Corp. of China (601600.SH, 2600.HK) are
similarly circling Glencore Xstrata PLC's (0805.HK, GLEN.LN) Las
Bambas copper asset in Peru.
A person at the Tewoo's executive office said Thursday no one
was available to comment. Tewoo said on its Website it is China's
largest import and export enterprise, distributing iron ore, coal,
energy and other materials to China's Tianjin and Hebei steel belt.
Though it is China's second-largest ore trader, the fragmentation
of the market has meant the company accounts for only 5% of traded
volumes.
News of the deal, which is expected to close by the end of the
year subject to Tewoo's due-diligence and regulatory approvals,
sent African Minerals' share price soaring 35.7% on Thursday while
the FTSE 350 index was broadly flat.
African Minerals plans to use the extra proceeds to fund
Tonkolili's expansion to 35 million tons a year. Tewoo will pay
$600 million for a 10% direct stake in Tonkolili and $390 million
for a 10% equity stake in African Minerals following the issuance
of new shares. The deal also includes a 20-year supply agreement
with Tewoo and the creation of a joint venture with the miner to
blend and market iron ore via Tianjin.
Frank Timis, executive chairman of African Minerals, said Tewoo,
Shandong Iron & Steel Group, and China Railway Materials
Company Ltd. were among its long-term supply partners. "We will
have almost all of the Tonkolili project's production committed for
the next 20 years," he said.
The Tonkolili project is 75% owned by African Minerals and 25%
by Shandong Iron & Steel Group. African Minerals will own a 65%
stake in the project once the deal is completed.
Write to Alex MacDonald at alex.macdonald@wsj.com and Chuin
Wei-Yap at chuin-wei.yap@wsj.com
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