brm has no alternative

From today's Oz.
Sarah-Jane Tasker | November 05, 2008
AUSTRALIAN iron ore miners will come under pressure to offer a stake to Chinese steel players if they want to finalise offtake agreements for their product.

The iron ore sector is no longer immune to the global financial crisis and miners are cutting back production and staff because of the slowdown in China.

Analysts predict that when the industry does comes out of the downturn there will be a list of Chinese companies with holdings in Australian miners.

"It will not simply be securing a straight offtake agreement any more, because the companies providing the capital will want a stake, and on their terms," DJ Carmichael analyst James Wilson said.

"If the iron ore industry is on its knees, these steel mills would rather give capital in return for a stake. They know they are not just a buyer any more, but a lifeline."

The ball is now firmly in China's court, as shown by Mount Gibson's announcement of agreements with two Chinese traders this week. The Mid West-focused miner had been on the verge of closing its doors after three of its customers defaulted on contracts, leaving it to secure new deals on heavily discounted terms.

"The Chinese have the upper hand and now is the time for steelmakers to integrate with Aussie miners on savage terms," Mr Wilson said.

"A lot of the smaller players have to get these deals in place to go forward. They will have to give up a part of the company, but it also secures their supply, so it is good for both sides."

Roger Agnelli, chief executive of Brazilian mining giant Vale, this week said the downturn in iron ore demand would force 50 per cent of producers out of the market.

"The next two to three months will clarify who is in the market and who is out," he said.

Also this week, Gindalbie Metals announced that Chinese steel giant AnSteel, its joint venture partner in the Karara iron ore project, wanted to increase its stake in the company, and had offered the junior $162.06 million for the interest.

A further announcement is expected today.

Fat Prophets analyst Greg Canavan said the fact that Chinese companies were taking advantage of the global climate to get a stake in the Australian resources sector showed there was confidence in the industry.

"At least some of these players have shareholders who can support them, and it is a vote of confidence on the projects and the industry for the long term," he said.

Iron ore junior Centrex Metals is not planning to be in production until 2010, but it already has Chinese steel producer Baotou Iron and Steel as a shareholder and is in talks with others.

Managing director Gerard Anderson said the company was in talks not just for offtake agreements but for interest in joint ventures.

"Some projects are costly, and raising the money in this environment could be difficult, but if you link up with a large player with financial resources it gives the company a competitive advantage," he said.

"The interest is still there, and with the devaluation of the Australian dollar, it is a good time for some of these foreign companies to be buying."

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