2010-11-19 09:46

Workers test an iron ore treatment facility of Wuhan Steel in Enshi, Hubei province. [Photo / For China Daily]

Africa, Brazil and Canada targeted in quest to ease reliance on costly imports

BEIJING - Wuhan Iron & Steel Group, China's third-largest steelmaker, is in discussions with Canada-listed Adriana Resource Inc for a stake in the Lac Otelnuk iron ore project in Quebec, a senior executive said Wednesday.

"We have reached a preliminary agreement with Adriana Resource to jointly develop the iron ore project," said a senior executive from Wuhan Steel, who declined to be named.

He also said Wuhan Steel plans to organize a Chinese company union to jointly develop an iron ore project in Cameroon, West Africa. The China State Construction Engineering Corporation has expressed an interest in joining the union. The Lac Otelunk ore project contains more than 6 billion tons of ore reserves available for exploitation, with a 29 percent ore content.

Adriana Resource is a junior exploration-stage company, engaged in the acquisition and exploration of resource properties including the Lac Otelnuk project and the development of an iron ore port facility in Brazil.

Donald K. Charter, chairman of the board of Adriana Resource visited Wuhan Steel in May to discuss potential opportunities for cooperation with Wuhan Steel's Chairman Deng Qilin.

The Chinese steel company has been seeking to invest in more overseas iron ore assets to cut its reliance on expensive imports. "We aim to be self-sufficient in iron ore supplies in three to five years," Deng Qilin said in March.

Wuhan Steel in May received approval from the National Development and Reform Commission for two acquisitions in Africa that are expected to contribute nearly 2 billion tons of iron ore deposits.

In Octobor 2009 the company agreed to buy more than 40 million tons of iron ore under a seven-year contract with Corp Venezolana de Guayanathe, a Venezuelan company, at a "China Price" separate from what the big three global miners are charging.

Wuhan Steel also acquired a 21.52 percent stake in Brazilian iron ore miner MMX Mineracao e Metalicos SA for $400 million last year.

The company also received approval from the Australian government for a A$271 million ($249 million) investment in Centrex Metals Ltd in November, and also for a 60-percent stake in the iron ore rights to five Centrex projects in South Australia.

China, which dominated the global resources transactions market last year, will maintain significant growth in the next 10 years, driven by the country's need to secure raw materials to support its rapid economic transformation, said David Xu, partner of transactions and restructuring sector in KPMG China.

"Although mining asset prices in mature countries like Canada have been bid up, people still think the assets will appreciate in value as they predict a depreciation of the US dollar," he said.