china inc lines up for some of the action

China Inc lines up for some of the action in the Pilbara
Michael Sainsbury From: The Australian June 29, 2011 12:00AM

CHINA Inc is eyeing the planned expansion of emerging Pilbara miner Atlas Iron as the platform for its multi-billion-dollar infrastructure and financing ambitions in the Australian mining sector.

Atlas is planning new mining operations, a $2.7 billion port expansion and a 100km railway link to Port Hedland worth about $300 million, with a number of Chinese state-owned corporations lining up to grab part of the action.

Atlas aims to build infrastructure as the head of the Northern Alliance, offering an alternative to the big three -- BHP Billiton, Rio Tinto and Fortescue Metals Group -- which either won't offer third-party access to their infrastructure or insist on charging expensive fees.

China Railway Materials is set to emerge as a key stakeholder although its 10 per cent stake in FerrAus bought for $9m in 2009 -- will be diluted by the new deal. The rail group will, however, jump in value by as much as 400 per cent.

Its partners in the failed Yilgarn bid for the struggling Oakajee project -- China Metallurgical Construction Corporation and China Habour -- are understood to be interested in contracts with Atlas.

All three infrastructure groups have close links to Sartori Investments, the Shanghai-based advisory firm headed by Paul Glasson that has been intimately involved in Atlas's expansion strategy for a number of years.

China's main policy banks, China Development Bank and China Import-Export Bank will stand ready to finance the project -- possibly through the Australian banks that act as agents for them, including Westpac and ANZ.

China has long sought ways into the Australian and other Western construction and infrastructure markets, as it pushes to become the world's civil engineer. Its biggest companies in the sector strive to become multinationals.

China's booming state-owned enterprises -- which are growing in size and profitability -- have an increasing number of projects in African nations and other developing countries, but the West is the holy grail.

The logic behind putting Atlas and FerrAus together is powerful, particularly in infrastructure, Mr Glasson said.

As a company valued at $190m, FerrAus did not have a sufficiently strong balance sheet to get infrastructure funding and neither did its previous suitor, Hong Kong investment vehicle Wah Nam.

Atlas is pitching the bid as good for Wah Nam, as its investment will be worth more and provide infrastructure access for its nearby Brockman Resources investment.

From China's point of view, a bulked-up business with better scale and lower costs, along with new port and rail infrastructure, fulfils its key aims -- to increase iron-ore supply and cut the cost of the prime raw material for its steel mills.

Mr Glasson said the diplomatic style of Atlas chief executive David Flanagan and his team was appreciated in China, as was a commitment to sell 100 per cent of its product to the country.

Observers in China also said a larger Atlas -- which already ships all its product to a mix of state-owned and private steel mills in China -- would now be firmly on the radar of China's major steel mills. A number have already invested in junior mining companies in Western Australia but the emergence of Atlas as $3bn company is the best opportunity to grab a stake in a mid-sized company since Hunan Valin bought 16.9 per cent of Fortescue in 2009.

The Atlas proposal comes only weeks after the collapse of Clive Palmer's $US3.5bn ($3.34bn) Resourcehouse listing, which aimed to have China Railways and MCC each take a $200m stake in the company.

Mr Palmer still claims he can secure financing for the project from Chinese banks and backers, but so far has nothing concrete.

Chinese companies have far from given up their ambitions in Queensland. China Heavy Machinery Corporation is in discussions with financiers about funding a bid for the $5bn expansion of the Wiggins Island port facility. Queensland Premier Anna Bligh has also been on an investor roadshow to Hong Kong, Beijing and New York in the past 10 days.