Wuhan Steel gets green light for Africa ventures

08:27, May 25, 2010      

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China's third largest steelmaker Wuhan Iron and Steel Group on Monday received approval from the National Development and Reform Commission (NDRC) for two overseas acquisition deals in Africa that are expected to contribute nearly 2 billion tons of iron ore deposits.

The government cleared Wuhan Steel's plan to acquire the Soalala iron ore deposit in Madagascar with two other companies and the company's stake buy in a Liberian iron ore project.

The exploration license for the Soalala iron ore project was granted to Hong Kong-based Wisco Guangxin on May 8, a joint venture company 42 percent owned by Wuhan Steel, 38 percent by the Guangdong Foreign Trade Group Co and 20 percent by Kam Hing International Holdings, according to a statement released by Hong Kong-based Kam Hing International Holdings.

The project involves an area of more than 430 square kilometers and contains more than 800 million tons of reserves available for exploitation.

Wuhan Steel also signed an agreement on March 12 to pay China-Africa Development Fund $68.46 million for a 60 percent stake in China Union Investment Co, which owns an iron ore deposit located in central Liberia.

The project is the largest overseas investment in Liberia, with a deposit of 1.31 billion tons of iron ore reserves and is connected to ports via an 80-kilometer railway.

Wuhan Steel has been seeking to invest in more overseas iron ore assets to cut reliance on expensive imports.

"We aim to be self-sufficient in iron ore supplies in three to five years," Deng Qilin, chairman of Wuhan Steel, said in March.

Wuhan Steel acquired a 21.52 percent stake in Brazilian iron ore miner MMX Mineracao e Metalicos SA for $400 million last year.

The company also received approval from the Australian government for a A$271 million ($249 million) investment in Centrex Metals Ltd in November, and also for a 60-percent stake in the iron ore rights of five Centrex projects in South Australia that could contain up to 2 billion tons of resources.

"Africa has huge iron ore resources. But iron ore transportation requires advanced infrastructure development due to the large quantities involved," said Yu Liangui, a senior steel analyst with Mysteel.com.

"It will require huge investment to build railways and ports in Africa, which might be the reason why Africa is not the first choice for Chinese enterprises."

"However, with the ore prices surging, China needs to diversify its iron ore supplies to break the monopoly of the three global miners - Rio Tinto, BHP Billiton and Vale," he said.

Rio Tinto has increased ore prices by $10 per ton in the second quarter compared with the first quarter. Accordingly its 63.5 percent grade iron ore powder now costs $123 per ton (Free On Board), while iron ore lumps are at $138 per ton.

The price increase in the second quarter is expected to push costs for Chinese steelmakers by an additional 40 billion yuan based on the import volume in April.

Source: China Daily


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