Baosteel bids for equity in Australian enterprises

Baosteel Resources Australia Co., Ltd. has taken a major step forward by partnering with Australian firm Aurizon Co., Ltd. to acquire a significant stake in Aquila Resources Co., Ltd. This move marks one of the largest investments by Chinese companies in an underdeveloped iron ore project in Australia over the past few years, signaling a challenge to BHP Billiton’s long-standing dominance in the country's iron ore export market.

If the deal is finalized and the commercial viability of the West Pilbara Iron Ore Project (WPIO) — valued at around $7 billion — is confirmed, Baosteel could establish a new iron ore supply chain in Australia. The project aims to supply Asian steel mills, with production expected to start between 2017 and 2018.

The WPIO project holds over 2 billion tons of reserves, making it the second-largest iron ore deposit in Western Australia after Gina Rinehart’s Roy Hill project, which has 2.4 billion tons and is set to begin operations in 2015.

In its first phase, the WPIO project is expected to produce 30 million tons annually. While this is significantly smaller than the output of major players like Rio Tinto and BHP Billiton, the project stands out due to its planned infrastructure. The partners intend to build a new railway line and port at Anketell Point, which will be open to other miners. This could provide a crucial transportation solution for previously stalled projects, as many face challenges due to limited access to ports and rail networks. The Anketell Port is designed to handle up to 300 million tons per year.

The remaining shares of the WPIO project are held by AMCI and South Korea’s Posco. Based on Posco’s 2010 acquisition of a 24.5% stake, Aquila’s 50% ownership is estimated to be worth at least A$375 million. However, Aquila’s own valuation suggests the project is far more valuable, as it has nearly doubled its reserves since exploration began and has received all necessary environmental approvals from both state and federal authorities.

If the acquisition goes through, Baosteel Resources International will hold up to 85% of Aquila’s shares, with the rest owned by Aurizon. Despite a potential slowdown in China’s steel demand growth, overall demand remains strong, making this strategic move even more justifiable in the long term.