Sinosteel looking to spend

The door to billions of investment dollars from China’s second largest iron ore trader, Sinosteel Corp, is open to Western Australian miners and explorers as the company’s quest to secure long-term supplies gathers momentum.

Sinosteel Corp has a $4 billion-a-year turnover, is China’s second biggest iron ore distributor and the largest distributor of other raw materials.

And it has a history of activity in Western Australia.

Sinosteel is currently renegotiating extended supplies from the Channar iron ore mine joint venture in the Pilbara, a deal struck with Rio Tinto’s Hamersley Iron in 1990 after three years of negotiations.

The 40 per cent stake, secured by Sinosteel unit CMIEC, was China’s first direct iron ore investment in Australia and remains one of the largest Sino-Australian co-operative projects.

The original agreement was for the supply of 200 million tonnes, and Sinosteel Australia managing director Xiaofei Cui told WA Business News about 165mt had been supplied.

The Channar joint venture demonstrates Sinosteel’s long-term project investment supply strategy, most recently applied to its joint venture with Midwest Corp for the $1.5 billion development of the Weld Range hematite and Koolanooka magnetite projects in WA’s burgeoning Mid-West region.

The company has also had talks with a number of other aspiring WA iron ore producers, including Grange Resour-ces over its $1.5 billion iron ore and Malaysian iron pellet project based on Grange’s Southdown deposit near Albany.

An important element in Sinosteel’s expansion plans, as reported in WA Business News late last year, is the company’s involvement in a consortium that includes the giant China Development Bank and the Export-Import Bank of China, which have provided Sinosteel with $3 billion to fund future investments.

Mr Cui said that, while his company’s main interest was securing iron ore, it was also very interested in base metals and coking coal, “but not gold”.

While not ruling out direct investment in Australian companies, he said the immediate focus was on project investment.

Mr Cui was speaking after addressing an iron ore conference in Perth at which he declared Sinosteel well and truly open for more business.

“l’d like to explore more opportunities in Australia, so if you have any ideas or opportunities, I’d be happy to discuss them,” he said.

Sinosteel represents 18 major Chinese steel mills and traded more than 20mt of iron ore last year. China is the world’s biggest iron ore importer.

At a time of record iron ore prices, widely tipped to rise a further 5 per cent this year, the Sinosteel-Midwest joint venture example shows the Chinese are willing to share the project development pain from the outset to secure relatively low entry level future supplies.

The Chinese want to diversify their supplies away from Australia’s BHP Billiton, the UK-based Rio Tinto and the Brazilian Cia Vale do Rio Doce (CVRD), which account for about 75 per cent of the global iron ore trade.

To achieve its 50 per cent of Weld Range, Sinosteel has to match Midwest’s $16.3 million development costs, then match future expenditure dollar for dollar.

At the conclusion of the pre-feasibility study, the project will be independently valued and Sinosteel will invest half that into the Weld Range project, effectively funding the project’s development and construction.

Sinosteel has also agreed to take 50 per cent of the product over the life of the mine, and has an option to take the rest.

Sinosteel will receive its first ore from Midwest’s 1mt/year, seven-year Koolanooka hematite project, 150 kilometres east of Geraldton, later this month.

The Weld Range hematite and Koolanooka magnetite concentrate/ pellet projects are targeting between 15mt and 20mt/year over 15 years from Weld Range and about 5mt/year from Koolanooka, by the end of the decade.