Sinosteel makes $902m bid for Midwest
Updated: 2008-03-14 14:11
Chinese commodities trader Sinosteel Corp launched a A$954m ($902m) hostile bid for Australian iron ore prospector Midwest Corp, as it seeks to lock up scarce ore supplies.
The first hostile offer by a Chinese firm in Australia's mining sector is likely to lead to more moves by Chinese firms to acquire Australia mining houses and secure resource supplies as China's hunger for imported raw materials intensifies.
"Miners are realising that the cost of mining in China is high and that overseas it is relatively cheaper," said Liu Yikang, Deputy Secretary General of China Mining Association.
Sinosteel already owns 19.9 percent of Midwest and is a joint venture partner in Midwest's Mt Weld prospect, one of five deposits it is looking to exploit.
Sinosteel is offering A$5.60 a share in cash, a 35 percent premium to Midwest's Thursday close, and said it already had clearance to proceed from Australia's Foreign Investment Review Board.
Sinosteel dropped a friendly buyout proposal for Midwest in January after Malaysia's David Law, a Midwest director who holds a 13.3 percent stake, said he would not accept A$5.60 a share.
"We have made this offer directly to Midwest shareholders as we firmly believe it provides (them) with the opportunity to realise certain value in cash for their shares at a significant premium to historical trading levels," Sinosteel President Tianwen Huang said in a statement.
Midwest shares jumped 31 percent to A$5.44 on Friday, still some way short of the offer price, suggesting there may not be competing suitors.
Sinosteel's offer, valuing all of Midwest at A$1.2b, hinges on securing at least 50.1 percent of Midwest's shares.
"This is the first time a Chinese partner has actually gone in to take the whole company and maybe it's an omen of things to come," said DJ Carmichael & Co analyst James Wilson.
China has emerged as the world's top steel maker with a hunger for imported ore to feed its mills. Demand has helped drive iron ore prices sharply higher, with some mills paying double what they did last year.
"Iron ore prices are rising fast and it's in the best interest of Chinese companies to get into companies like Midwest as soon as possible," Wilson said.
Miners estimate that China accounts for more than 90 percent of global growth in the iron ore market
At present, almost half of China's demand for iron ore is met from its own mines or from India, where much of it is bought at high prices on the spot market.
Chinese investors loom large on the share registers of other fledgling iron ore miners, raising speculation of a Beijing-sanctioned swoop on outback assets.
"China is starting to feature prominently in Australian mining," said Eagle Mining Research analyst Keith Goode.
Perhaps the most daring Chinese raid to date was by Chinalco, which paid $14b for a 9 percent stake in Rio Tinto Ltd/Plc, the world's second-biggest diversified mining house. The move has threatened to gatecrash BHP Billiton Ltd/Plc's $140b takeover bid for Rio.
Mount Gibson Iron Ltd last month called in regulators to investigate the motives behind Shougang Concord International Enterprises Co Ltd's purchase of a 19.73 percent stake in Mount Gibson from Gazmetall, a company owned by Russian billionaire Alisher Usmanov.
Steel group Shougang also holds 18 percent of APAC Resources Ltd, which owns 20.22 percent of Mount Gibson.
Another prospector, Gindalbie Metals Ltd, is 12.7 percent-owned by Anshan Iron & Steel Group Corp.
JP Morgan is advising Sinosteel. EXIM Bank of China has committed to provide funding for the deal.
Midwest and Murchison Metals Ltd are among a handful of prospectors seeking to develop mines in far western Australia's midwest region, where much of the ore was deemed uneconomical to mine until ore prices started soaring on Asian demand.
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