hebei steel seeks to finance aurox project

By Alfred Cang

QINGDAO, Oct 23 (Reuters) - China's state-owned Hebei Iron and Steel Group is in early talks with Australian iron ore prospector Aurox Resources (AXO.AX: Quote, Profile, Research, Stock Buzz) to finance the Aurox's 6-million-tonne iron ore project, the Australian miner's managing director said on Thursday.

"We met with Hebei Iron and Steel's president yesterday," Charles Schaus told Reuters on the sidelines of an industry conference, but he declined to disclose more details because he said negotiations were at an early stage.

Schaus said talks with Hebei Iron and Steel had progressed slowly due to its state-owned nature and global recession fears.

"It takes a longer time for them to make a decision," Schaus said, "and they said they are going slowly now due to the market".

In May, Chengde Iron & Steel Group, now part of the Hebei Iron and Steel Group, held talks to buy a stake in Aurox but that did not result in a deal.

Hebei Iron and Steel Group was formed in June through the merger of Tangshan Iron and Steel Group and Handan Iron and Steel, China's No. 3 and No. 11 steel makers, with the aim of overtaking Baosteel (600019.SS: Quote, Profile, Research, Stock Buzz) as China's top steel producer.

Schaus said Aurox, the prospector with a half of billion tonnes of iron ore, will start construction early next year and expects to launch production for the project by the end of 2009.

He said the miner will have annual capacity of 6 million tonnes of iron ore after construction is completed.
It would be the second investment made by a Chinese firm in Aurox after RockCheck Steel Group, one of China's top 10 private steel makers, bought a 9 percent stake in the Perth-based resources firm for A$10 million last July.

(Writing by Rujun Shen; Editing by Ken Wills)