Kevin Andrusiak | February 25, 2008 CHINESE interests are this...

Kevin Andrusiak | February 25, 2008
CHINESE interests are this week expected to step up their investments in the booming Australian iron ore industry, partnering junior iron ore hopeful Cape Lambert in what is tipped to be a multi-million-dollar deal.

Despite increasing scrutiny from Canberra over foreign investment on the Australian resources landscape, giant Chinese steel company Metallurgical Group Corp is believed to be the front-runner to partner Cape Lambert at its namesake iron ore project in the West Australian Pilbara.

Cape Lambert went into a trading halt on Friday with market speculation now centred on an announcement that Metallurgical will invest around $300 million in the project. The deal would also see Metallurgical fund construction of a processing plant at the Cape Lambert project.

Metallurgical is a big, state-owned conglomerate that has been at the forefront of building additional steel-making capacity in China and can boast financial interests in five continents.

Metallurgical is also partnered with Citic at the nearby Sino Iron iron ore project, which is on ground that was once owned by well-known entrepreneur Clive Palmer.

Interest in investing in Cape Lambert's project, on the Pilbara coast near Karratha, has come from a number of Chinese parties, but Metallurgical is now considered the front-runner for a joint venture deal.

Cape Lambert executive director Tony Sage was in China last week and was believed to have met senior Metallurgical representatives after they showed more interest in the project following release of test work data by Cape Lambert.

Earlier in the month Cape Lambert said studies by an international research centre confirmed much of the silica in a concentrate sample could be removed without much alteration to the iron units.

The testwork showed that the silica levels could be nearly halved.

Following the research, the concentrate assayed 66.4 per cent iron and 4.8 per cent silica, which made it suitable to be considered by steel mills as blast furnace pellet feed.

The reverse flotation test was conducted in Germany, and Cape Lambert said at the time it was confident further reductions in silica could be achieved through "test work optimisation".

"I hope these results put to bed any doubts the market may have about Cape Lambert's ability to produce a saleable final concentrate at less than 5per cent silica," company chairman Ian Burston said at the time.

Cape Lambert is also on track to give an improved resource estimate for the project in June with the current resource standing at 1.56 billion tonnes grading 31.2 per cent iron.

The company hopes to prove up enough reserves at its flagship project for a 15 million tonne a year operation for at least a 20-year mine life.

Most of the resource is for magnetite product, which requires additional processing to bring it into line with haematite ore grades.

Cape Lambert is expected to come out of its trading halt by tomorrow.