TOKYO/SYDNEY Japan's Marubeni Corp (8002.T), steelmaker POSCO (005490.KS) and shipbuilder STX Corp (011810.KS) will buy 30 percent of an Australian iron ore project for A$3.5 billion ($3.6 billion), the latest in a series of investments by Asian firms in the country's iron ore sector.
The Roy Hill project, owned by Australia's richest woman Gina Rinehart's Hancock Prospecting and located in the Pilbara iron belt, plans to start shipping ore in 2014, with production expected to peak at 55 million metric tonnes (60.68 million tons) a year.
At that rate, the mine would match the current production rates of Australia's no. 3 producer Fortescue Metals Group (FMG.AX).
Industry experts have said the price the Asian companies were paying was high, possibly as much as 15-20 percent more than other iron ore deals, and was affecting the view of the valuation of other iron ore assets.
"It shows how undervalued Fortescue is," Fortescue Chief Executive Nev Power told reporters last week when asked to comment on the price POSCO had agreed in January for its portion of the deal that Marubeni announced on Friday.
However, some industry executives and a banker not involved in the deal told Reuters the higher price was justified as the project, expected to cost A$9.5 billion to build, has one of the last remaining high quality iron ore lodes.
They also highlighted it has already won state approvals for a rail line and port berths, a big stumbling block for many other projects.
The investment will provide the consortium with a combined 16.5 million metric tonnes of iron per year from the mine.
"We are pleased to finalize this strategic alliance with companies whose countries need our iron ore and with the mutual determination to make this project a success," Rinehart, chairwoman of privately-held Hancock, said in a statement.
A key component of the project is a dedicated 342-km railway that connects the mine to export terminals in Port Hedland.
Trading house Marubeni will buy 12.5 percent of the project for A$1.5 billion, while POSCO will get 15 percent for A$1.7 billion and STX 2.5 percent for A$300 million, the Japanese company said.
Rating agency Standard & Poor's said it expects the project's mining cost to reach A$9.5 billion and that Marubeni will fund most of its share via a project finance loan. Its BBB/Stable ratings on Marubeni would not be affected by the investment, S&P said.
SERIES OF ASIAN MINE DEALS
The investment is Marubeni's first in iron ore, adding to a long list of Asian companies that have taken direct stakes in Australia's iron ore lodes to feed steel demand which is expected to remain strong for many years ahead given rapid urbanization.
Marubeni, strong in copper and grain investments, had made it a top priority to acquire iron ore assets.
POSCO first bought into the Roy Hill project in January 2010, taking a 3.25 percent stake with an option to increase it to 15 percent once the project completed a feasibility study.
Roy Hill has indicated reserves of more than 2.4 billion tonnes of iron ore, according to the company.
Excluding the Hancock project, Australian iron ore miners collectively have earmarked $35 billion for growth plans.
Fortescue this month launched a $1 billion bond offering in unsecured notes to help fund its plans to nearly triple annual production to 155 million metric tonnes by the middle of next year.
Rio Tinto (RIO.AX) (RIO.L) is spending heavily to boost output to 283 million metric tonnes a year by the second half of 2013 from 225 million metric tonnes now.
BHP Billiton (BHP.AX) (BLT.L) last week said it was sticking with its $10 billion iron ore expansion plan and was mining ore at a rate of 165 million to 170 million metric tonnes per year.
Commodities forecasters are divided on whether such a surge in supply coinciding with a Chinese economic cool-off will finally push the global seaborne market for iron ore into oversupply over the next 12 months or so, after three years of heady growth. China accounts for about 60 percent of world trade in iron ore.
Hancock, controlled by Rinehart, the world's 29th richest person based on Forbes magazine's latest rich list, is also developing a smaller iron ore mine in the Pilbara with Rio Tinto, slated to yield 15 million tonnes per year starting in mid 2013. ($1 = 0.9685 Australian dollars)
(Additional reporting by Sonali Paul in MELBOURNE, Narayanan Somasundaram in SYDNEY, and Hyunjoo Jin in SEOUL; Editing by Ed Davies)