Marubeni in talks with Rinehart's Hancock over Roy Hill stake
by: David Winning and Mari Iwata From: Dow Jones Newswires March 16, 20124:15PM
JAPAN'S Marubeni is in advanced talks with Hancock Prospecting, owned by Australia's richest person, Gina Rinehart, to buy a 12.5 per cent stake in the Roy Hill iron-ore project in Western Australia, a person familiar with the matter said today.
Negotiations over a deal, which could be worth more than $US1 billion ($950 million), are taking place despite a legal battle in Australia between Mrs Rinehart and three of her children over control of a family trust that holds nearly a quarter of the equity in Hancock Prospecting.
An agreement between Marubeni and Hancock Prospecting will likely be concluded within weeks, the person said.
The Roy Hill project is located in Western Australia's Pilbara region, about 280km south of Port Hedland, the world's second-largest iron ore port after the terminals at Sao Luis in Brazil.
According to Hancock Prospecting's website, Roy Hill has an indicated and inferred resource of over 2.4 billion tonnes of iron ore.
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End of sidebar. Return to start of sidebar. . Hancock Prospecting declined to comment immediately on potential new investment in the Roy Hill project. A spokeswoman for Marubeni wasn't available to comment.
Earlier this week, The Australian's Andrew Burrell reported that Mrs Rinehart would seek to dampen speculation that the bitter family feud had threatened her planned $7 billion Roy Hill iron ore mine by unveiling the project's equity partners, including a $1.5bn cash injection from Korean steel giant Posco.
Sources close to Hancock said the dramatic courtroom bid by three of the magnate's children had not affected plans to bring in equity partners and obtain billions in debt funding for Roy Hill.
Steelmakers and trading houses are placing bold bets on new Australian mining projects with the potential to supply iron ore and coking coal, key ingredients in making steel, to North Asia, where industries including construction, shipbuilding and auto manufacturing are booming.
Japan is the world's second-largest producer of steel by volume after China, accounting for a 7.8 per cent share of the global market in 2010, according to Deutsche Bank. Key consumers include vehicle makers, such as Toyota Motor, which are ramping up production after some units were temporarily shuttered in the wake of the devastating earthquake and tsunami that hit Japan a year ago.
Much of the merger and acquisition activity involving Asian consumers is taking place in Western Australia's remote Pilbara region, which accounts for around 40 per cent of the global trade in iron ore by sea.
The global iron-ore trade, estimated at $US150 billion, has long been dominated by major miners including Rio Tinto, BHP Billiton and Brazil's Vale SA.
Still, smaller miners like Hancock Prospecting with tenements in the Pilbara are racing to get projects developed and financing tied down ahead of an estimated demand increase of 100 million tonnes of iron ore annually through the remainder of the decade.
This has prompted them to offer equity stakes and rights to take some of the iron-ore production to Asian consumers, which have the potential to secure support from local banks at a time when traditional providers of project finance in Europe have scaled back lending.
In January, South Korea's Posco said it plans to acquire a 15 per cent stake in the Roy Hill project from Hancock Prospecting for 1.779 trillion Korean won ($1.52bn).
Finalising agreements with minority investors in Roy Hill will enable Hancock to focus on resolving how ore will be transported to port for export.
Hancock Prospecting was granted a license in July last year for a 320km track that would carry 55 million tonnes annually.
However, market participants expect a bigger track to be laid, possibly operated by QR National, to generate economies of scale and allow other miners in the region, such as Atlas Iron and Wah Nam International Holdings's majority-owned Brockman Resources unit, to transport ore to port.
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