Mainland steelmaker Shougang Concord International Enterprises is considering a downstream investment in a West Australian ore miner, according to deputy managing director Michael Chen Zhouping. On the cards for the Hong Kong-listed subsidiary of state-owned Shougang Corp was an investment in Australasian Resources' US$2.1 billion Balmoral South Iron Ore Project in the Pilbara region of Western Australia, Mr Chen said.
"We're conducting a feasibility study. It is probable we'll directly invest in the project rather than our parent company, the Shougang Group," said Mr Chen.
If the feasibility study recommended a go-ahead, Shougang International could take a 50 per cent stake in the project and sign an agreement to buy all the iron ore the project would produce, he said.
The Australian listed firm has the right to mine one billion tonnes of magnetite iron ore from the Susan Palmer deposit in the southern block of the Balmoral resource in the Pilbara, on land adjoining Citic Pacific (SEHK: 0267)'s George Palmer deposit.
The project was expected to provide 12 million tonnes of iron ore per year throughout its 25-year lifespan, Mr Chen said.
Shougang International has businesses ranging from steel-making, transport and power generation but has no mining investments. However, its parent Shougang Group has iron ore mines in the mainland and Peru. Production was about five million tonnes of ore a year from the mainland mine and seven million tonnes a year from Peru, said Mr Chen.
In June, Shougang International completed the purchase of a 6.4 per cent stake in Australasian Resources for HK$180 million. APAC Resources, a Hong Kong-listed firm in which Shougang Group has a 17 per cent stake, also bought 6.4 per cent of the Australian firm.
The investment in the iron ore project was likely to be taken by Shougang International to showcase the parent's support, said Mr Chen. As it is an overseas registered firm, it also has more flexibility to invest in overseas projects and a platform to raise funds.
He refused to specify the investment that may be involved but Australasian Resources' website says the project needed investment of US$2.1 billion. "If we decide to invest, it is sure that we need to raise funds for the project, such as project financing or others, but it is not a big problem," said Mr Chen.
Shougang International raised a total of HK$2 billion in two separate share placements in June and July.
Its steelmaking business, which accounted for 76 per cent of the company's turnover and 64 per cent of profits in the first half, is expected to generate inspiring earnings growth on continued demand from ship-builders for its steel plate and expanded production scale which would provide strong cash flows.
The company plans to boost its production capacity at its Qinhuangdao, Hebei province, steel plants to three million tonnes of steel slab and 2.5 million tonnes of steel plate by 2009 from 2.6 million tonnes and 1.9 million tonnes this year, respectively.
About 50 per cent of Shougang International's steel plate is for shipbuilders and the rest for the infrastructure and machinery industries.
Mr Chen said the firm also planned to invest 375 million yuan on its Qinhuangdao steel plants to develop value-added services such as steel plate coating and modularisation that could further lift gross margin 5 to 6 percentage points from 28 per cent.
The firm's net profit soared 451 per cent for the first half to HK$464.7 million.
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