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Updated September 26, 2013, 11:33 a.m. ET
China's Tianjin Minerals Buys $990 Million Stake in African Iron Mine
By CHUIN-WEI YAP in Beijing and ALEX MACDONALD in London
China's Tianjin Minerals and Equipment Group Corp. agreed to pay $990 million for a 16.5% stake in a Sierra Leone iron-ore mine, signaling that the world's largest steel-producing country remains on the prowl for metal assets.
The investment values African Minerals Ltd.'s AMI.LN +1.56% Tonkolili mine at $6 billion, and marks the company's second major deal with a Chinese partner in as many years. The company, which is based in London, last year received a $1.5 billion investment from Shandong Iron & Steel Group to finance African Minerals' operations, which produce 20 million metric tons a year. African Minerals plans to use proceeds from Thursday's deal to fund Tonkolili's expansion to 35 million tons a year.
African Minerals' shares rose 44% Thursday in London.
Small miners world-wide have been struggling to obtain financing for projects as slower economic growth in China, the world's largest consumer of the steelmaking ingredient, has helped push down iron-ore prices.
Thursday's deal by Tewoo, as the Chinese company is known, marks the country's return to a resource market where it has struggled to secure supply. Acquisitions, including a $8 billion iron project 900 miles north of Perth, Australia and a $3 billion magnetite project in Western Australia's Cape Lambert, have had years of delays or been suspended amid cost overruns.
A senior official at China's National Development and Reform Commission last December said that while Chinese companies had invested more than $10 billion in overseas iron-ore mines, few of the projects had begun operation, according to the official Xinhua news agency.
But while official caution over such projects has increased, so has the country's appetite for steel.
Iron-ore imports rose to a record 73 million tons in July and fell only slightly in August, according to the government. China depends on imported ore for 60% of the country's steelmaking.
The government estimated that China is likely to produce a record 780 million tons this year. State-led construction of railways and other infrastructure and restocking of inventories are behind the recent gains in demand.
"Construction investment and robust demand for automobiles should keep commodity demand robust and assist with the running down of metal stockpiles," said National Australia Bank economist James Glenn.
Iron-ore import prices had recovered recently, rising 19% from the year's low in May to $132 a ton for shipments to China's northeastern port of Tianjin. Prices have softened somewhat in the past month as Chinese mills have restocked.
State-owned metals companies continue to consider purchasing overseas assets. China Minmetals Corp. has said it was considering a bid for Rio Tinto's RIO.AU -0.16% $4 billion Canadian iron-ore operations. And Minmetals, Jiangxi Copper Ltd., and Aluminum Corp. of China 601600.SH +10.10% are circling Glencore Xstrata GLEN.LN -0.22% PLC's Las Bambas copper asset in Peru.
Tewoo says 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. It is China's second-largest ore trader, though the fragmentation of the market means the company accounts for only 5% of volume in China.
Tewoo will pay $600 million for a 10% direct stake in Tonkolili and $390 million for a 10% stake in African Minerals. African Minerals owns 75% of the Tonkolili project and Shandong Iron & Steel owns the rest. African Minerals will own 65% of the project when the Tewoo deal is completed. The deal also includes a 20-year supply agreement for Tewoo.
The latest agreement gives African Minerals long-term supply deals with Tewoo, Shandong Iron & Steel and China Railway Materials Co., said the miner's executive chairman, Frank Timis. "We will have almost all of the Tonkolili project's production committed for the next 20 years," he said.
The Tewoo deal is expected to close by year-end, subject to due diligence and regulatory approval,
Write to Chuin-Wei Yap at email@example.com and Alex MacDonald at firstname.lastname@example.org