MMAC urges domestic steelmakers to further develop overseas mines

MMAC urges domestic steelmakers to further develop overseas mines

The Metallurgical Mines Association of China [MMAC] is urging domestic steelmakers to develop overseas mines in order to secure iron ore supplies and relieve future resource shortages in China, a senior MMAC official said on May 16.

The MMAC predicts that China's crude steel output will reach 540 million tons in 2010, which requires 430 million tons of iron ore to be imported, assuming domestic iron ore production reaches 944 million tons.

"Besides developing China's mines in a sustainable manner, domestic steelmakers should cooperate in overseas projects with both caution and long-term vision," senior MMAC official, Jiao Yushu, said at the 2007 Iron Ore Supply-Chain Summit held on May 16 in Sichuan Province's capital, Chengdu.

Since the early 1980s, many steelmakers have enthusiastically developed overseas mines, which currently supply China with 48 million tons of iron ore annually.

"Although some Chinese steelmakers developed overseas mines early on, many of the projects were low-grade and at inconvenient locations. This is the main reason behind Shougang Group's consideration over the sale of its stake in the Marcona Mine," Jiao said.

Jiao also expressed his regret over discontinued overseas joint mining projects, including CVRD's Carajas Mine, Mineracoes Brasileiras Reunidas's Capao Xavier Mine, and Australian Hancock's Hope Downs Mine and Guinea Nimba Mine, which actually have good development potential.

The Carajas Mine developed by CVRD contains 300 million tons of proven iron ore reserves grading 65 percent to 66 percent and is able to have an output of 6.5 million tons of iron ore per year. Baosteel Group, WISCO, Magang and Sinosteel all withdrew from the project due to an off-take agreement dispute.

The same Chinese companies, Baosteel Group, WISCO, Magang and Sinosteel, retreated from the Capao Xavier project due to similar reasons. The Capao Xavier mine contains 170 million tons of proven iron ore reserves at a grade of 66 percent and currently has an output of 6.67 million tons of iron ore per year.

Jiao also commented that the CISA and the MMAC should provide more help and guidance to domestic steelmakers on overseas mining, such as joint bidding for mines and how to develop railway and port infrastructure at mining sites.

"The current disorderly state of domestic steelmakers' overseas mining projects leads to unnecessarily high costs and at present, is unregulated," a MMAC official, surnamed Zou, said.

Zheng Dong, an analyst from Guoxin Securities, suggested that a better way to develop overseas mines is through joint ventures and acquisitions. He commented that steelmakers should only develop overseas mines if they are high grade, rich in reserves, easy to develop and close to seaports and railroads.

Dong added that another important factor in choosing overseas mines is the political stability of the host country, so as to ensure that steelmakers minimize the associated risks that political unrest has on overseas mining activity.

The below tables show domestic steelmakers' overseas mine joint ventures and current overseas iron ore mining projects.

Overseas iron ore mine joint ventures

Mine Location JV stake distribution Output capacity (million tons per annum)

Channar Iron Ore Mine Western Australia Hamersley 60%, Sinosteel 40% 10

Marcona Iron Ore Mine Peru Shoudu Iron and Steel Group 98.5% 7

Baovale Mineracao Brazil Baosteel Group 50%, CVRD 50% 6

Paraburdoo Australia Hamersley 54%, Baosteel Group 46% 10

Jimblebar Mine (Wheelarra Joint Venture) Australia Tangshan Iron and Steel Group 10%,WISCO 10%, Maanshan Iron and Steel Group 10%, Shagang Group 10%, Nippon Steel and Sumitomo Metal Industry 4.2%, Itochu 4.8%, and BHP 51% 12

Quy Xa Vietnam Kunming Iron and Steel Group, Vietnam 1.5-3.0

[Source: MMAC ]

Chinese steelmakers' current overseas mining projects

Project Location JV stake distribution Planned output

SINO Iron Ore Project Western Australia CITIC Pacific 40%, WISCO 40%, Tangshan Iron and Steel Group 10% and Handan Iron and Steel Group 10%

24 million tons of iron ore output per annum

Karara Iron Ore Mine Western Australia Australia Gindalbie Metal Ltd 50%, Anshan Iron and Steel Group 50%

First phase production capacity 10 million tons of iron ore; to be commissioned in 2010

Koolanooka Iron Ore Mine, Weld Range Iron Ore Mine Western Australia

Australian Midwest and Sinosteel jointly carried out initial preparation 12 million ton of iron ore per annum from Koolanooka, 15-20 million tons from Weld Range

Australasian Resources' Balmoral South Iron Ore Mine Western Australia Shougang Group's initial injection of AUD 56 million ($46.24 million ), project total investment is $1.75 billion To be settled

Mt Anketell Iron Ore Mine Western Australia Cape Lambert 30% and Delong Iron and Steel Group 70% 7.5 million tons of iron ore per annum; to be commissioned in 2010

Brezovsky Iron Ore Mine Russia Shangdong Luneng won 25-year mining rights to the iron ore deposit Chita Oblast for $38 million in May 2005.

The company will invest $494 million for the construction of two open mining pits and an ore processing plant. 10 million tons of iron ore per annum and 5 million tons of pellet; to be commissioned in 2010

[Source: MMAC and Interfax China Metals (copyright), 18 May 2007] ]