China enters Australian iron ore venture


Much of the iron ore produced in Australia's Pilbara region is destined for steel mills in China

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- China's largest steelmaker, Shanghai Baosteel Group, is to form an iron ore joint venture in Western Australia.

It follows a similar production deal Baosteel struck with a Brazilian supplier in August.

The Australian joint venture is with Hamersley Iron, which is 100 percent owned by the Anglo-Australian mining house Rio Tinto.

Hamersley Iron said it reached agreement in Shanghai Thursday with Baosteel to jointly develop a new mine in the Pilbara region of Western Australia.

Initially, Hamersley and Baosteel will outlay $64 million to develop the mine, which is 10 km east of the Paraburdoo mine.

Under the agreement, Hamersley will supply Baosteel with 200 million tonnes of iron ore, averaging 10 million tonnes a year over the 20-year life of the joint venture.

Hamersley will hold 54 percent of the equity, with Baosteel holding the remaining 46 percent.

Similar deal with CVRD

In August, Baosteel signed a similar agreement with Brazil's Companhia Vale do Rio Doce (CVRD) to set up a 50-50 iron ore production joint venture.

That venture will have annual production capacity of 8 million tonnes and will supply Baosteel with 6 million tonnes a year over the next 20 years.

Baosteel, formed in November 1998 through a series of amalgamations and restructuring among Shanghai-based iron and steel producers, has annual steel-making capacity of 18 million tonnes.

In a statement to the Australian Stock Exchange Friday morning, Hamersley Iron chairman Chris Renwick said the Baosteel deal continued his company's tradition of working in partnership with major Chinese customers.

He said China was the fastest growing market for imported iron ore and the joint venture would consolidate Hamersley's position as the leader iron ore supplier to China.

The agreement is subject to approval from both the Western Australian government and the federal government's Foreign Investment Review Board.

Rio Tinto shares traded higher Friday afternoon, up 25 cents or 0.7 percent to Aust. $36.20.