By Ross Kelly and David Rogers
SYDNEY--A China-led takeover of Australian iron-ore miner Aquila
Resources Ltd. faces a potential roadblock after a rival mining
company snapped up a significant chunk of Aquila's shares.
A rival bid would complicate Beijing's efforts to accumulate
offshore mineral assets considered crucial to its long-term
economic development.
Australia's Mineral Resources Ltd. on Wednesday bought at least
12.1% of Aquila at a 10% premium to the price offered by China's
state-owned Baosteel Group and partner Aurizon Holdings Ltd., two
people familiar with the matter said. The Chinese-led bid values
Aquila at 1.4 billion Australian dollars (US$1.3 billion).
Earlier in the day, Aquila had reported that 50 million of its
shares changed hands in a block trade carried out at A$3.75 each,
followed by additional large transactions at the same price.
Baosteel bid A$3.40 a share.
It wasn't immediately clear why Mineral Resources--which has a
market value of A$1.9 billion--might have bought the stake. The
shares would give the company a chance to influence the development
of Aquila's prized iron-ore project in Western Australia, which has
an estimated development cost of A$7.4 billion. Mineral Resources
also has an iron-ore processing business that could benefit once
Aquila's project begins producing.
Aquila's shares rose to more than a two-year high Wednesday,
closing at A$3.61 each--some 6% above Baosteel's bid. The Chinese
steelmaker and its Australian partner may now face pressure to
raise their bid. They may also be wondering whether Mineral
Resources is planning its own takeover move on Aquila with an
as-yet-undisclosed ally.
Mineral Resources is "dipping their toes into the water with
several options," said Gavin Wendt, a Sydney-based analyst at
consultancy Minelife, which specializes in the resources industry.
"It could be opportunistic and they'll push the Chinese to pay a
higher price, or they could see longer-term value in the assets and
will want to partner up in getting them developed."
Baosteel, which owns China's largest listed steel mill, bought
15% of Aquila in 2009 when iron-ore prices were rising, and later
raised its stake to 20%. It was attracted to Aquila's plans for the
new mine, called West Pilbara, which is expected to eventually
produce more than 30 million metric tons of iron ore a year.
Baosteel first announced its plan to work with rail-freight
hauler Aurizon on a joint takeover offer for Aquila last month.
Under the proposal, Baosteel would own as much as 85% of Aquila,
which also owns an undeveloped coking-coal prospect in Queensland
state. Aurizon would take the remaining interest.
Aquila, whose executive chairman and co-founder Tony Poli holds
29% of the company, hasn't so far responded to Baosteel's proposal.
The bid was made after Aquila's iron-ore project became steeped in
delays and cost blowouts, mirroring other investments by Chinese
companies in the mineral-rich Pilbara region of Western
Australia.
Mineral Resources, which has placed its shares in a trading
halt, wouldn't confirm that it was the buyer in Wednesday's block
trade.
Baosteel couldn't immediately be reached for comment.
China has long relied on Australia for the bulk of its iron-ore
imports, which are used to make steel for everything from
skyscrapers to limousines. Most of the iron ore is shipped to order
from large mining companies such as BHP Billiton Ltd. and Rio Tinto
PLC, although a small-yet-growing supply line comes from Australian
mines bought by state-run Chinese companies in an earlier wave of
deals.
Baosteel's takeover proposal underlines the company's
re-emergence as a leader in China's steel industry. It is the first
state-owned mill to take up Beijing's call, issued in January, for
big Chinese resources companies to acquire more iron-ore assets
abroad.
The move also highlights Baosteel's willingness to spend on new
investments despite weak steel prices and a gloomy outlook for the
industry at home. Iron-ore prices recently fell to their lowest
level since late 2012, partly because of concerns about China's
steel demand.
Traders have also cited concerns about an emerging oversupply of
iron ore as large producers continue to expand their Australian
mines.
Write to Ross Kelly at ross.kelly@wsj.com and David Rogers at
david.rogers@wsj.com
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