Chinese Steel Maker Has Iron Grip On Kazakh Resources

July 2, 2008

July 2nd (Forbes) –  Facing price increases of several multiples for iron ore, and amid ongoing restructuring of the domestic steel sector, northwestern China’s largest steel maker, Jiuquan Iron and Steel Group, also known as Jiugang, took steps to secure a stable supply of iron ore. It formed a partnership with a Kazakhstani mining company to gain access to Central Asian sources of the essential component of steel.

Jiugang has committed assets worth 30 billion yuan ($4.37 billion) to taking a majority stake in a joint venture deal with International Mineral Resources, which is registered in the Netherlands, to mine in Kazakhstan for iron ore, the steel producer announced today. IMR agreed to supply iron ore at the prevailing market price to Jiugang in the future.

The parties agreed to the joint venture last August and have now won approval from authorities in western Gansu province, where Jiugang is based.

The world’s biggest producer and consumer of steel, China has encouraged its steel producers to cooperate with foreign firms to obtain supplies of iron ore abroad. Other iron mining hotspots for Chinese steel producers include regions of Australia, Brazil and India, said Shanghai-based analyst Yukun Le, who tracks steel for Boci Research.

“China is short of iron ore, so the government encourages the domestic steel companies to invest in other companies,” Le observed. Mergers and acquisitions have also been increasingly common within the domestic sector, he said, as part of a government-led effort to create big Chinese steel players to negotiate on an equal footing with the mining giants in the global market.

For its 51% stake in the deal, Jiugang, the country’s 16th-ranked steel maker, will put up its entire steel production assets and mines, as well as its holdings in its Shanghai-listed unit, Gansu Jiu Steel Group Hongxing Iron and Steel Co., and in another firm, Yuzhong Iron and Steel Co. IMR paid cash for the remaining stake.

After the close of trading Thursday in Shanghai, Gansu Jiu Steel Group Hongxing Iron and Steel Co. was up 2.2%, to 9.16 yuan ($1.34).

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