UPDATE 1-Chinese firms back off from Chile iron mine talks
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By Fang Yan and Alfred Cang
SHANGHAI, Nov 21 (Reuters) - Shandong Iron and Steel Group and other big Chinese steel mills are no longer interested in buying a Chilean iron ore miner they have held talks with, as a slumping economy has left ample ore supplies, company sources said on Friday.
Chilean iron ore firm Sociedad Contractual Minera Hierro Paposo had approached potential Chinese buyers, including the state-owned parent of Wuhan Iron and Steel (600005.SS), eyeing a deal worth hundreds of millions of dollars, industry sources have said.
"We are no longer interested in the offer. The market is not very good now and ore prices have been falling," a Shandong Steel source with direct knowledge of the deal told Reuters. Shandong Steel is the parent of Jinan Iron and Steel (600022.SS) and Laiwu Steel Group (600102.SS).
Wuhan Steel has more attractive options for access to resources in Australia and Canada, where weaker local currencies offer lower purchase costs, and is unlikely to put money into the Chilean project, an official in the company's investment section said.
Trading houses Minmetals Corp, which has cut ore imports by about 3 percent this year amid falling prices, and Sinosteel, which owns 45 percent of Murchison Metals Ltd (MMX.AX), also have little interest in the assets at this time, company sources with direct knowledge of the situation told Reuters.
BUYERS' MARKET
In recent years, China, the world's largest steel maker, has rushed to sign iron ore supply agreements with overseas miners such as BHP Billiton (BHP.AX) (BLT.L) to ensure its mills are sufficiently stocked.
A slowing economy and weakening demand, however, have recently spurred Chinese mills to cut output, which tumbled 17 percent year-on-year in October to 35.9 million tonnes, the lowest since May 2006.
A grim market outlook has also forced Baoshan Iron and Steel Co (600019.SS), the listed unit of the country's biggest mill, to slash sales prices for some of its products this week for the third time since October. [ID:nSHA333839]
Facing fewer orders, global iron ore mining majors Vale (VALE5.SA) and Rio Tinto (RIO.AX)(RIO.L) have removed a combined 50 million tonnes of iron ore capacity this quarter.
"We no longer have as big an appetite for overseas iron ore as we once did," said the source with Shandong Steel. "The tide has turned now. It's a buyers' market."
Hierro Paposo's ultimate owners include the Quantek Opportunity fund, run by Latin American asset managers Quantek. The project's owners had hired advisory firm Hatch Corporate Finance to run the sale.
The mine will take at least four years to start producing and could eventually produce around 15 million tonnes of iron ore a year from an open pit and an underground mine, an industry source has said. But another source familiar with the asset said output would likely be only around half that figure.
One investment banker not involved in the sale told Reuters in September that the asset might fetch a price in the hundreds of millions of dollars, but he was sceptical about how attractive it was, given the location, the ore quality and the number of other assets for sale. (Reporting by Fang Yan and Alfred Cang; Editing by Edmund Klamann)
