Australia's Foreign Investment Review Board (FIRB) has given approval to an investment by Wuhan Iron & Steel (Wisco) into South Australian iron-ore company Centrex Metals, according to a Centrex announcement yesterday.
The deal is worth up to A$271 million ($245 million) and will allow Wisco, China's third largest steel company, to acquire a 60% stake in five iron-ore tenements along the Eyre Peninsula that are owned by Centrex.
The transaction already has approval from China's National Development and Reform Council.
Wisco's stake in the iron ore rights will be made up of a number of interests. For a start, it will take a direct equity stake in Centrex at a cost of A$10 million. This will be made up of 40 million ordinary shares, to be placed to the Chinese company at a price of A$0.22 each, equivalent to a 15% stake in the company pre-issue and 13.04% post-issue. Wisco will gain a seat on Centrex's six-person board of directors.
Wisco will then pump a further A$186 million into Centrex. The payments will be staggered and based on the company meeting certain government-set targets. The Chinese company will also supply another A$75 million into a joint venture between the two companies called Eyre Iron. The JV, which will be 60% owned by Wisco, will carry out the initial exploration and study of the iron tenements. On top of this, there will be another joint venture, equally owned by both partners, which will build a deep-water export port.
The benefit of the deal for Centrex is that it provides copious project finance. Once the staggered payments are made, its cash reserves will be A$67 million.
"With Wisco sole funding the first A$75 million in exploration and study costs, Centrex can complete the Wilgerup feasibility study in the knowledge that project funding is almost complete," said Gerard Anderson, Centrex's managing director. He added that the money from Wisco "delivers a sound long-term cash and project funding capability for at least the next three years".
Wisco is a major Chinese steel company with an annual capacity of 30 million tonnes a year. In 2007, its total assets were worth Rmb118 billion ($17.3 billion). It has a 48.3% interest in Kunming Iron & Steel Corporation and an 80% stake in Guangxi Iron and Steel Group. This summer, the company made the news when it offered $400 million for a minority stake in Brazilian mining company MMX.
Yesterday's announcement is the latest in a string of approvals for Chinese investments in Australia. In late October, Yanzhou Coal's $3 billion bid for Brisbane-based Felix Resources got the go ahead. And earlier this week, Baosteel Group announced that it would be able to take a 15% stake in Aquila Resources.