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re: sinosteel article Sinosteel Seeks Stake in Australian Iron Ore Project (Update3)

Feb. 28 (Bloomberg) -- Sinosteel Corp., China's second- largest iron ore trader, is seeking a majority stake in Grange Resources Ltd.'s $1.1 billion iron ore pellet project in Western Australia to secure supplies of the steelmaking ingredient.
Sinosteel is in talks to take a stake of as much as 70 percent in the project, which could produce 6.6 million tons of iron concentrate, said Xiaofei Cui, managing director of Sinosteel's Australian unit in a Feb. 24 interview.
Co-operating with smaller producers such as Grange may enable companies in China, the world's fastest-growing economy, to reduce their reliance on BHP Billiton, Rio Tinto Group and Cia. Vale do Rio Doce. The top three iron ore producers, who account for about three-quarters of the global trade, last year won a 71.5 percent increase in prices.
``The Chinese want to diversify their supplies and with the small miners they can get equity stakes that they can't get from the bigger ones like Rio Tinto,'' Peter Chilton, who helps manage A$1.1 billion ($812 million) at Constellation Capital Management, said in Sydney. ``If they can get in early, they may be able to lock in supplies at good prices.''
China's economy has grown 55 percent in the last five years, helping it to surpass the U.K. as the world's fourth largest economy. That's fueled a 25 percent jump in steel output last year, as more cars, plants and appliances were built. Production may rise another 10 percent this year, the China Iron and Steel Association said.
Surging demand from Chinese steelmakers and limited supplies led to iron ore prices jumping to a record last year. Prices may rise at least 10 percent again this April, Kumba Resources Ltd., the world's No. 4 iron ore producer, said last week. Sinosteel's Cui last week had argued prices should fall by up to 10 percent as steelmakers are facing lower steel prices.
Cars, Plants
Grange's shares were unchanged at A$1.18 on the Australian Stock Exchange at 1:38 p.m. Sydney time. They have fallen 19 percent this year-to-date, compared with the 3 percent gain on the benchmark S&P/ASX 200 Index.
Grange's project involves building a mine at the Southdown magnetite deposit in Western Australia. Production would be shipped from the Port of Albany. The mine, which could last 22 years, may produce 6.6 million tons of concentrate a year, said Grange's Chief Financial Officer Mark Smith.
The concentrate would be exported to a proposed pellet plant in Malaysia for processing. Construction for the plant could take 24 months to 30 months, said Smith in an interview over the phone in Perth on Feb. 27.
``We do need a partner for the funding, and Sinosteel would be a good fit for Grange, but there's also other parties interested,'' Smith said. As many as ten companies have expressed interest in the project, said Smith. Grange is scheduled to complete a feasibility study on the project by the end of March, he said.
Chinese Growth
``Among the projects we're studying in Australia, this is one we're quite hopeful about,'' Sinosteel's Cui said in Perth. ``It does depend on Grange because there's quite a few other companies competing for this.''
China, the world's largest steelmaker, may increase iron ore imports 16 percent this year to 320 million tons, China Metallurgical and Mining Association Chairman Zou Jian said Jan. 19. Its economy could grow 9.2 percent this year, after expanding 9.9 percent in 2005, according to the World Bank.
Sinosteel has secured financing worth about $2.2 billion for investments worldwide including Australia and Brazil, said Cui last week at a conference in Perth.
The company last October signed an agreement to study the development of A$1.5 billion worth of iron ore projects in Western Australia with Midwest Corp. It also has a mining joint venture with Rio Tinto, the world's second-largest iron ore exporter, in Australia.
`Quality Projects'
Rio and BHP Billiton last October said they are investing a combined $2.65 billion in their Western Australian mines.
``There's only so many large high-quality projects around, and the next step is to look at the other opportunities to get around the Rio-BHP market share,'' Gavin Wendt, senior resources analyst at Fat Prophets, said in Sydney. ``The smaller companies obviously need the financing, and a lot of projects now look feasible because the environment has changed a lot in iron ore prices.''
Other Chinese investors include Beijing Shougang Co. China's second-largest producer of construction steel is paying A$120 million for a 50 percent stake in Mt. Gibson Iron Ltd.'s A$715 million iron ore project in Western Australia.
Sinosteel, which shipped 20 million tons of iron ore to China last year, is looking to invest in iron ore, base metals and coking coal projects, Cui said last week.

To contact the reporters on this story:
Tan Hwee Ann in Melbourne at [email protected]
Last Updated: February 27, 2006 21:38 EST