News Room - Steel Industry

Posted on 24 Feb 2009

China, India show interest in Aussie mining assets

THE current alarming rise in the stockpiles of major commodities in the world has not deterred merger and acquisition (M&A) interest, especially from China and India, in the huge mining assets in Australia, Africa and Latin America.

 

Australia’s debt-laden mining assets of Rio Tinto and Oz Minerals are being chased by Aluminium Corp of China (Chinalco) and Minmetals Corp, also from China.

 

Wuhan Iron & Steel Group and Jiangsu Shagang Group, China’s third- and fifth-largest steelmakers, are also said to be shopping for stakes in iron ore mining companies in Australia and Brazil.

 

India’s largest iron ore producer NMDC has also shown interest in undertaking a joint-venture greenfield mining project in Africa while eyeing majority stakes in mining properties in Armenia, Brazil and Australia.

 

Binani Zinc Ltd, India’s second largest zinc producer, is planning to acquire mines in Iran and Australia to support its smelter operations in Kerala.

 

So why does the quest for mining assets in aluminium, copper and iron ore continue to persist despite these commodities’ high stockpiles in the warehouses of the London Metal Exchange?

 

Aluminium stockpiles have hit a record 3.15 million tonnes, up 80% from three months ago while those for copper have surged to 545,600 tonnes, the highest level in five years.

 

The answer is simple - the company that holds the biggest mining assets will have the upper hand in influencing the global price of commodities, be it iron ore, aluminium, or copper.

 

The key is to hold sustainable long-term supply of the commodities.

 

It was reported recently that China, the world’s top metals (alumina, copper, bauxite, zircon and nickel) importer, acquired US$22bil worth of commodity assets so far this year after a 70% drop in metals and oils since July ended a six-year boom in raw materials.

 

Also, bear in mind that China still needs more commodities to fuel its economic growth despite the current slowdown.

 

At the same time, Indian commodity giants are also no newcomers to the M&A scene in Western countries.

 

To date, the most talked-about M&A in the steel sector is the US$23bil merger between the two largest steel groups, India-based Mittal and Arcelor in late 2006, resulting in the industry’s first global steel giant.

 

Arcelor-Mittal accounts for about 10% of the world steel output, which is about three times that of its nearest competitor Nippon Steel.

 

Another significant transaction is the acquisition of Corus, the world’s ninth largest steel maker by India-based Tata Steel, the world’s 56th largest. Corus is strong in the high-end European steel market while Tata is a low-cost steel producer in India.

 

On the home front, Malaysia may be facing huge palm oil stockpiles at 1.83 million tonnes but cash-rich local plantation groups like Sime Darby and Kuala Lumpur Kepong are keenly pursuing acquisitions of greenfields or struggling plantation companies either in Malaysia or Indonesia.

 

Early last year, Malaysia Smelting Corp Bhd announced its intention to invest about US$100mil for the acquisition of gold mining assets in Australia and Indonesia as well as coal mines in Indonesia.