UPDATE 1-China Metallurgical to buy Australia iron mine

(Recasts, adds details, chairman quote, updates shares)

SYDNEY, Feb 26 (Reuters) - China Metallurgical Corp has agreed to pay $370 million for a yet-to-be-developed iron ore mine in Australia, the latest move by a state-run conglomerate to acquire assets in Australia's booming resources sector.

Massive industrialisation has sent Beijing-controlled companies scouring abroad for raw materials such as iron ore, nickel and coal to supplement limited supplies at home.

Under direct supervision of the government, China Metallurgical has more than 70 subsidiaries, including about 20 overseas companies worldwide.

Rapid expansion in China's steel industry, now the world's biggest, has made iron ore a highly prized commodity among Beijing's central planners, particularly ore from Australia due to the relatively short shipping time to home ports compared with the mammoth deposits of Brazil and Africa.

China's hunger for imported ore has taxed the limits of Australia's two big iron ore miners, BHP Billiton Ltd/Plc (BHP.AX) and Rio Tinto Ltd/Plc <RIO.AX(RIO.L). Besides China, both companies have long been big suppliers to Japan, South Korea and elsewhere in Asia.

BHP Chief Executive Marius Kloppers has used the need to mine more iron ore as a reason for launching the world's second largest takeover attempt for Rio.

Rio has rejected the offer as too cheap, mainly because of its growth potential in iron ore mining.

Another Chinese multinational, Chinalco earlier this month teamed with U.S. aluminium producer Alcoa (AA.N) to buy 9 percent of Rio.

Cape Lambert Iron Ore Ltd (CFE.AX) said on Tuesday it had signed a preliminary pact to sell its project to China Metallurgical for A$400 million ($370 million) pending approvals from Australian foreign investment regulators and its own shareholders later this year.

"This is all about the Chinese securing iron ore supplies in the future," Cape Lambert's chairman, Ian Burston told Reuters.

China Metallurgical has paid a A$10 million deposit and had until April 30 to complete due diligence on the project and obtain Chinese government approvals for the acquisition, Burston said.

China Metallurgical already owns 20 percent of the A$5.2 billion Sino Iron Ore Project, located about 120 kilometres southwest of Cape Lambert in the ore-rich Pilbara region.That project has access to over 2 billion tonnes of ore, yielding 27.6 million tonnes a year.

On a world scale, Cape Lambert is a relatively small, though long life, mining project. An early blueprint calls for production of around 15 million tonnes of ore annually for 20 years starting in 2011 or 2012.

Rio and BHP each produce more than 100 million tonnes each year and have mapped out big expansion plans.

Burston said Cape Lambert had retained an exploration property near the project and was also reviewing prospects elsewhere in Australia and in Sierra Leone. ($1=A$1.08) (Reporting by James Regan; Editing by James Thornhill)