Coal

[mhlld]

China May Invest A$10 Billion in Australian Mines (Update1)
Sept. 22 (Bloomberg) -- Chinese metals companies such as Beijing Shougang Co. are in talks to spend as much as A$10 billion ($8 billion) on Australian mines to make sure China's mills don't run out of raw materials.

The planned acquisitions could increase China's total investment in Australian projects six-fold within three to five years, said Henry Wang, senior investment commissioner for Greater China at government agency Invest Australia.

Commodity prices have risen to all-time highs because global mining companies such as BHP Billiton can't keep up with China's demand for materials to feed mills, building sites and car plants. As competition for minerals increases, steelmakers and traders including Beijing Shougang and Sinosteel Corp. are going to the source to ensure they have enough iron ore and coal.

Overseas investment ``is a necessary and natural step for Chinese metal producers because the country is short of natural resources,'' said Lin Hai, who helps manage the equivalent of $1.8 billion for Guotai Asset Management Co., including shares in Baoshan Iron & Steel Co. ``With these investments they can lower costs and take pre-emptive rights on the raw materials.''

Half of the proposed Chinese investments are in iron ore, 30 percent in coal and the rest in natural gas and other metals, said Wang, who runs four of the agency's 12 overseas offices. Australia, the world's biggest coal and iron ore supplier, had garnered A$1.6 billion of investment from China by the end of 2004, according to Wang.

Steady Supply

Beijing Shougang, the publicly traded unit of China's fourth-biggest steelmaker, will pay A$120 million for a 50 percent stake in Mt. Gibson Iron Ltd.'s A$722 million iron ore project in Western Australia, subject to a feasibility study, Mt. Gibson Finance Director Alan Rule said by phone from Perth.

``We definitely need to invest in overseas iron ore projects so we can secure a steady raw material supply for our plants,'' Liu Anshan, a spokeswoman at Shougang Group's mining resources unit, said in Beijing.

In 2001, Baosteel invested $30 million in the Eastern Ranges iron ore mine in Western Australia, partnering Rio Tinto.

China wants ``to control the supply chain,'' said Wang at a conference organized by London-based Metal Events Ltd. on Sept. 16. ``There's an urgency for them to get into long-term contracts or be involved in directly investing.''

Competition

Australian exports of minerals and energy rose to a record A$67.4 billion in the year ended June 30, boosting the local dollar by 9 percent in a year. Commodities account for 60 percent of the country's export earnings.

Chinese companies are competing for Australia's resources with rivals such as South Korean steelmaker Posco, Japan's Nippon Steel Corp. and Mitsubishi Corp., which already own stakes in Australian mines.

Indian companies are also hunting for assets. Coal India Ltd., which produces 87 percent of the nation's supply, is looking for stakes in Australian mines and plans this year to meet with officials from Queensland state.

Chinese companies are in talks to participate in all eight new iron ore projects being developed in Western Australia, Wang said. Fortescue Metals Group said this month it held talks with investors, including steel trader Sinosteel, which in June signed a joint development with Perth-based MidWest Corp.

``Of the total iron ore that China imports, China has some kind of involvement in the supplier in 25 percent of them,'' Wang said. ``The Chinese industry wants to increase that to 50 percent.''

Uranium Talks

Iron-ore contract prices charged by BHP Billiton, Rio Tinto and Cia. Vale do Rio Doce, which account for more than three quarters of global ore trade, jumped 71.5 percent from April 1.

Chinese companies are also ``very interested in getting involved in the mining of uranium,'' Wang said. These include ``state-owned enterprises involved in nuclear-power generation,'' he said, declining to identify them.

China National Nuclear Corp., the country's largest builder of uranium-fueled power plants, said in June the country plans to invest 400 billion yuan ($50 billion) in nuclear power from 2005 to 2020.

Australia, which has the world's biggest uranium reserves, last month started talks to export the fuel to China. China plans to boost nuclear energy fourfold by 2020.

Chinese companies may have an advantage in competition for Australian mineral assets ``simply because they're not only able to inject money, they can also secure the market,'' Wang said.

Bauxite Battle

Aluminum Corp. of China, known as Chalco, may be competing with companies from countries including Brazil, Russia, Canada and India for the Aurukun bauxite deposit in Queensland state. Bauxite is refined into alumina for smelting into aluminum metal.

Chalco is one of the companies that have expressed a strong interested in Aurukun, according to the Queensland government.

Other companies interested in developing Aurukun are Alcan Inc., BHP Billiton, Rio Tinto Group, Cia. Vale do Rio Doce, Hindalco Industries Ltd., Hydro Aluminium AS, Mitsubishi Corp., OAO Russian Aluminium and Xstrata Plc, Queensland Premier Peter Beattie said on Sept. 15.

Aurukun holds more than 650 million tons of bauxite. The deposits were previously held by Pechiney SA, which was acquired by Montreal-based Alcan in December 2003. The Queensland government revoked the lease after Pechiney didn't build a plant to refine the bauxite.