SYDNEY – (Reuters) – Chinese steel giant Baosteel Resources and an Australian partner launched a $1 billion takeover bid for Australian explorer Aquila Resources in a move that could help break the grip of mega iron ore exporters Rio Tinto and BHP Billiton.
Monday’s unsolicited A$1.14 billion ($1.06 billion) offer to take over Aquila Resources Ltd (AQA.AX) could open up a new Australian iron ore export region to supply Asian steelmakers, by jumpstarting the $7 billion West Pilbara Iron Ore project (WPIO), half-owned by Aquila.
State-owned Baosteel’s move would be the biggest foray into an undeveloped iron ore project in Australia by a Chinese investor since CITIC Pacific’s (0267.HK) $10 billion Sino Iron project, which began producing last year after massive cost blowouts and delays.
Baosteel, which already has a 20 percent stake in Aquila, said it first invested in the company back in 2009 to help it fund the iron ore project and a separate coking coal mine.
“But after five years we haven’t seen any projects being started. So we have been very patient, but we’ve become frustrated,” chief financial officer Wu Yiming told reporters on a conference call from Sydney.
Baosteel, China’s no.2 steel maker, and rail company Aurizon Holdings Ltd (AZJ.AX) said they will offer A$3.40 in cash per share, a 39 percent premium to Aquila’s close on Friday.
Including Baosteel’s existing stake, the offer values the target at A$1.42 billion. Aquila is sitting on A$507 million in cash and liquid investments, so the bid effectively values the debt-free company at A$913 million.
Aquila shares rocketed 39 percent to a high of A$3.41 and last traded at A$3.34, just below the offer price.
“From Baosteel’s point of view, China’s steel and iron ore demand growth may slow, but overall demand is still going to be massive, so it makes sense to make this acquisition,” said an analyst at a major Chinese bank.
OPEN PORT
If the Baosteel-Aurizon bid is successful and feasibility studies prove the West Pilbara Iron Ore project to be commercially viable, the partners expect to start producing iron ore in 2017-18, said Aurizon Chief Executive Lance Hockridge.
The WPIO project has more than 2 billion metric tons (1.1023 tons) of resources, just below the 2.4 billion metric tons that Australian billionaire Gina Rinehart has at the Roy Hill project, also in the Pilbara and due to start producing in 2015.
As designed, WPIO would produce 30 million metric tons a year in its first stage, dwarfed by Rio Tinto (RIO.AX)(RIO.L) and BHP Billiton (BHP.AX)(BLT.L), which together are expected to be producing around 620 million metric tons a year by 2017.
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