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Sinosteel's takeover downplayed

By Jiang Wei (China Daily)
Updated: 2009-03-09 07:51

Sinosteel President Huang Tianwen downplayed the company's takeover of Australian iron ore miner Midwest in a recent interview, saying it was based on good reputation and experience.

But the deal was more complex than Huang let on; it may be the first time a Chinese company grabbed control of an Australian resource company through a hostile takeover.

Sinosteel, which already owned almost 20 percent of Midwest's shares, in March 2008 renewed an offer previously rejected by Midwest's board by biding A$6.38 ($6.12) cash a share for the Perth-based firm.

By September 2008 it owned 98.52 percent of Midwest.

Sinosteel called the Midwest takeover "a major step forward in its international development".

"The company plans to play a significant role in developing the mid-west region of Australia," it said.

Sinosteel was one of the first Chinese companies to do business overseas.

It already has 21 subsidiaries and two representative offices operating internationally and has established itself in the Southeast Asian, Australian, African, European and South Asian markets.

Huang said investment in overseas mining resources is a breakthrough for the company's business abroad. But the company is not the only Chinese steel firm eyeing overseas metal resources, particularly iron ore.

Aluminum Corp of China, also known as Chinalco, recently proposed injecting $19.5 billion into Rio Tinto after joining Alcoa in buying a 12 percent stake of the global mining giant last year. The deal is still subject to approvals from relevant governments and shareholders.

Wuhan Iron and Steel agreed to buy 50 percent of stake in Centrex Metals' iron ore project in Australia for $127 million. The deal is expected to be complete in 2010.

The international iron ore benchmark price has increased over 200 percent since China started long-term negotiation with major mining companies in 2004.

Steel mills in China, the world's biggest consumer of iron ore, want to secure alternative supplies. Analysts said that direct ownership of Australian iron ore would help lessen China's dependence on global mining giants such as BHP Billiton and Rio Tinto.

Independent steel analyst He Rongliang suggested that China learn from the experiences of Japanese government, which supports businesses acquiring mines overseas.

He said price increases in iron ore have a significant impact on China and other major steel producing countries highly dependent on overseas resources, such as Japan and South Korea.

Chinese steelmakers are worse hit than their Japanese counterparts by price increases in the international market even though Japan imports 85 percent of its iron ore, he said.

He explained Japanese steelmakers can still turn high profits when costs increase because most of their products are high value-added and the Japanese industry is more efficient than the Chinese industry.

Japan also started a resource reserve project in 1983. Reserves expanded from crude oil and rare metals to coal and other mines.

"Subsidizing businesses involved in overseas resource projects is a key part of Japan's global resource strategy," he said.

Zeng Jiesheng, an analyst with Mysteel, said Chinese companies should expand their investment from mines to harbors and other infrastructure close to iron ore mines.