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China to accelerate investment in Australian iron ore

Fortescue Metals
iron ore stacker in
operation in West
Perth, Australia — MININGREVIEW.COM — 10 June 2009 – China is set to accelerate investment in iron ore projects in Australia – the world’s biggest exporter of the metal – in the wake of the collapse of its deal to buy stakes in mines owned by Rio Tinto Group.

“The opportunities for Chinese groups to come in and facilitate development of some of the smaller players are definitely going to start picking up pace,” said Eric Lilford, head of Australia mining at Deloitte Corporate Finance. Australia has US$21 billion (R168 billion) of proposed new iron ore mines, according to government estimates.

Last week Rio Tinto scrapped a planned US$19.5 billion (R156 billion) deal with Aluminum Corporation of China – known as Chinalco – in favour of a share sale and iron ore venture with BHP Billiton Limited, dashing Chinese expectations of locking in more supplies. Now Aurox Resources Limited, Grange Resources Limited and Atlas Iron Limited may attract increased investment from China, according to Ord Minnett Limited, an affiliate of JPMorgan Chase & Company.

“We won’t see this trend stopping or being deterred by Chinalco’s rejection, because these companies are trying to get sustained supplies with stable prices,” said Zhou Xizeng, a Beijing-based analyst at Citic Securities Company. “Chinese companies have been successful in forming alliances with Australian junior miners.”

Fortescue Metals Group Limited, controlled by billionaire Andrew Forrest, may be a target of Chinese investment with Baoshan Iron & Steel Company and China Minmetals Group among companies seeking acquisitions of overseas mining projects as the nation opens its purse strings, said Citigroup Incorporated.

China may spend more than US$500 billion (R4 000 billion) on foreign resource investments over the next eight years, according to Deloitte Touche Tohmatsu.

“It will refocus interest on the junior iron ore sector in the Pilbara region of Western Australia,” said Mike Young, managing director of Perth-based iron-ore explorer BC Iron Ltd. “The Chinese want to have a more personal level of involvement with their suppliers, and the private mills in China will start looking at other players.”