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Share Price: 1,350.50Bid: 1,350.50Ask: 1,351.00Change: -13.00 (-0.95%)Faller - Bhp Billiton
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DEALTALK-Mitsubishi seen tapping Chinese for Australia iron ore project

Mon, 20th Feb 2012 04:53

By Sonali Paul and Narayanan Somasundaram

Reuters) - Japan's Mitsubishi Corp plans to head to Beijing soon to line up a partner -- possibly Sinosteel or Baoshan Iron & Steel -- for a $10 billion Australian iron ore and port and rail development, people close to the deal said.

Mitsubishi has bought out its 50 percent partner Murchison Metals to take full control of the Jack Hills iron ore mine and the Oakajee port and rail project for A$325 million ($347 million) in a deal that closed on Monday.

The Japanese trading house has flagged it wants to bring in new partners to help fund the A$5.9 billion cost of building the Oakajee port and railway and the $3.7 billion expansion of the Jack Hills mine in the mid-west region of Western Australia, south of the main Pilbara iron ore region.

'That's the plan. With the stake buy done, Mitsubishi will move to get a partner for the rail and mine, preferably a Chinese investor,' a source familiar with the deal said, adding that a Chinese investor was preferred as it would also be a customer.

Mitsubishi wants to get a deal done in the next 6-12 months so it can move on with the project and could sell a 30 to 50 percent stake.

'At the moment they are open minded on the stake that would be sold,' the source said.

Whoever gets involved will need deep pockets, and there are not too many companies that fit the bill.

'This is a world class project. It's going to be a challenge to finance and you're going to need people with balance sheets to support it,' said a person familiar with Oakajee's evolution.

Sinosteel is seen as the most likely partner, as it is developing iron ore mines in the same area, a new iron ore belt that Asian steel makers want to see developed to challenge Australia's dominant iron ore producers, Rio Tinto and BHP Billiton.

A spokesman for Sinosteel Midwest, Sinosteel's Australian mining operation, declined to comment.

While a resouces joint venture between a Japanese and Chinese company may seem politically difficult given regional rivalries, economic necessity is bringing companies in the two countries together.

For Japanese trading houses, China is a huge market waiting to be supplied with resources and consumer goods, and Chinese companies have the cheap funding sources essential for major mining and energy projects.

If Mitsubishi and Sinosteel teamed up on the Jack Hills and Oakajee projects, they would be following in the footsteps of Mitsui and China's Shenhua Group, who teamed up in 2010 to chase coal developments.

Other potential partners in the port and rail project could be Angang Steel Co, which is a partner in the Karara iron ore mine with Gindalbie Metals in the same region, and Baosteel, people watching the process said.

South Korea's POSCO, which owns a 14 percent stake in Murchison Metals, had been seen as a potential stakeholder in the Western Australian projects. However a spokesman in Seoul said no decision has been made.

Australia's top coal transporter, QR National, is also keeping an eye on the Oakajee project.

'We're interested in seeing (Oakajee) going ahead and we'd be interested if there's an opportunity,' QR National spokesman Mark Hairsine said. ($1 = 0.9364 Australian dollars)

(Additional reporting by Rebekah Kebede in PERTH, Yuko Inoue in TOKYO and Hyun-Joo Jin in SEOUL; Editing by Richard Pullin) Keywords: MITSUBISHI OAKAJEE/

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