miner overreacts to chinese move

Making a mountain out of a molehill: miner overreacts to Chinese move

Bryan Frith | March 05, 2009
Article from: The Australian


MURCHISON Metals has been quick, if not hasty, to hail Sinosteel's appearance on the share register as a substantial shareholder.

According to Murchison CEO Paul Kopejtka it is "clear that Sinosteel sees Murchison as a sound investment, considering its status as a major strategic player in the mid-west region".

The state-owned Sinosteel acquired Midwest Corp last year in a $1.35 billion hostile takeover and also submitted an application for FIRB approval to acquire Murchison, which has iron ore deposits adjacent to Midwest, should it wish to do so.

However, the Federal Treasurer Wayne Swan limited Sinosteel to a maximum of 49.9 per cent of Murchison.

Since then Murchison's direct-shipping hematite ore resources at its Jack Hills project have failed to live up to expectations, but the company, in partnership with Mitsubishi, was selected as preferred tenderer to develop the $1.5 billion deep water port at Oakajee and appears to be favoured by the West Australian Government to build a rail line from the new port to the mid-west to enable a number of iron ore mines to be developed.

That's causing tension with Yilgarn Infrastructure, which also hopes to build the rail line, and also has a number of Chinese concerns as shareholders, including Sinosteel. Yilgarn has also signed foundation customer agreements with Midwest and Golden West but not, as previously claimed, with Gindalbie Minerals.

Sinosteel's substantial shareholding notice shows that it has lifted its stake from 2.4 per cent to 5.85 per cent, which arguably is still too modest a level for Murchison to read so much into it.

The notice shows that between January and October last year Sinosteel acquired 9.36 million Murchison shares at between $2.70 and $4.09, at an average of $3.70 a share, or $34.7 million.

Since then Murchison's share price has slumped and is 65.5c at present. Sinosteel has taken advantage of the price weakness to acquire a further 23.6 million shares for $8 million, an average of only 56c a share.

That suggests Sinosteel may have been averaging down. Its 5.85 per cent stake now has an average entry price of $1.80 a share.

Good time to buy



Sinosteel stalks Murchison

March 05, 2009 12:00am


MURCHISON Metals shares surged nearly 15 per cent yesterday, amid signs the fledgling iron ore producer is once again in the crosshairs of China-based giant Sinosteel.

Murchison lodged a statement with the Australian Securities Exchange announcing that Sinosteel -- China's second-largest iron ore importer -- had lifted its stake in the miner from 4.5 per cent to 5.85 per cent.

The share purchase, which takes Sinosteel past the 5 per cent substantial shareholder threshold, sparked speculation the Beijing-based company is readying for a new tilt at Murchison.

The sniff of a potential bid sent investors piling into Murchison shares, which defied weak trading on the broader share market to finish 8.5 higher at 65.5.

Sinosteel scooped up Murchison's next-door neighbour, Midwest Corp, for $1.36 billion in July -- creating history by pulling off China's first hostile takeover of a foreign company.

Many analysts consider the marriage of Murchison and Midwest as the natural next step, because combining the two miners' shoulder-to-shoulder deposits would unlock millions of dollars in cost-savings each year.

And the time is ripe for a potential offer, given Murchison's share market value is down 82 per cent from the start of last year at just $258 million.

There is also talk that Murchison's infrastructure partner, Oakajee Port and Rail, is on the verge of finalising an agreement with the WA government to build a $2 billion mine-to-port railway.

Treasurer Wayne Swan has already given the green light for Sinosteel to lift its stake in Murchison to 49.9 per cent.

A Sinosteel bid, however, is unlikely to be embraced by Murchison's cornerstone shareholder, South Korean steel giant POSCO, which owns just over 12 per cent of Murchison.

So far this year, Chinese government-owned Chinalco has proposed a $US19.5 billion cash injection into Rio Tinto, Beijing-based Minmetals has launched a $2.6 billion offer for troubled OZ Minerals and China's ninth largest steel-maker, Hunan Valin Iron and Steel, agreed to a $558 million investment in fledgling producer Fortescue Metals.