China’s Valin Steel Pays A$645M for Share of Fortescue Iron

An ore stacker places material at Fortescue Mining’s Cloudbreak iron ore mine in Western Australia.
Chinese steel producer Hunan Valin Iron & Steel Co. recently purchased a 17.4% interest in Fortescue
for almost A$645 million. (Photo courtesy of Fortescue Metals)
Australian iron ore producer Fortescue Metals has entered into subscription agreements with Hunan Valin Iron and Steel Company whereby Valin would acquire a 17.4% interest in Fortescue for a total investment of A$644.8 million. The agreements are conditional on receiving regulatory approval from Australia’s Foreign Investment Review Board and Chinese regulatory authorities.

Valin is one of China’s leading steel producers, with its main production facilities located in Hunan province. The majority of the company’s products are sold within China, with about 20% intended for the export market.

Fortescue and Valin have also signed a cooperation agreement and established a joint venture to increase Fortescue’s iron ore sales to Valin, to research new technologies to process lower-grade iron ores, and to give Valin the option to participate in any additional new projects Fortescue undertakes. Xiangtan Steel (a subsidiary of Valin) has an existing off-take arrangement with Fortescue for up to 1 million mt/y, and under the cooperation agreement and subject to expanded production, Fortescue will increase that supply to up to 4 million mt/y from 2010 onward. In addition, Fortescue and Valin will use “reasonable endeavors” to negotiate a new supply arrangement with Valin’s parent entity that would grow from an initial base of up to 1.4 million mt/y to a maximum of up to 6 million mt/y by 2013. This agreement also is dependent on Fortescue expanding current production.

Fortescue and Valin have agreed to establish a joint venture with China Central South University to review the feasibility of exploiting lower-grade hematite ore with an iron grade at or around 50%. If the ultimate outcome of the study supports the economic feasibility of such a project, Valin and Fortescue would form a joint venture to construct a processing facility. In recognition of the current adverse economic climate, the feasibility study will not commence until global economic conditions improve.

Fortescue also reports that it has commenced mining operations at its Christmas Creek mine in the Pilbara. Ore from the new mine will be blended with product from Fortescue’s established Cloudbreak mine. The company expects Christmas Creek ore to be available for transport to the Cloudbreak ore processing facility during May 2009.

The first Christmas Creek mining area is approximately 55 km to east of the Cloudbreak plant. The area hosts a significantly larger deposit than Cloudbreak, with a current reserve estimate of 997 million mt, compared to Cloudbreak’s 628 million mt.

Initially, Christmas Creek ore will be transported by truck to the Cloudbreak plant. Longer term, Fortescue plans to construct a rail spur from Cloudbreak to Christmas Creek.

As featured in Womp 2009 Vol 03 -