China's Hunan Valin Iron & Steel Group will spend AUS $1.2 billion for a 16.48 percent stake in Fortescue Metals Group (FMG), Australia's third largest iron ore supplier, China Business News reported Wednesday.

China's Hunan Valin Iron & Steel Group will spend AUS $1.2 billion (about 5.26 billion yuan) for a 16.48 percent stake in Fortescue Metals Group (FMG), Australia's third largest iron ore supplier, China Business News reported Wednesday.

According to an agreement signed yesterday, Valin will buy 225 million new FMG shares, adding to the 275 million FMG shares it acquired earlier from US hedge fund Harbinger Capital Partners. Following the deal, Valin will become FMG's second largest shareholder with a stake of 16.48 percent. Valin will also get a seat on FMG's board.

The AUS $1.2 billion deal, which is awaiting approval from the Chinese and Australian governments, will be jointly funded by Valin's own capital and loans from China Import and Export Bank, said a senior manager of the Chinese company.

The deal is the latest example of Chinese companies buying Australian resources as the global economic downturn suppresses prices of these commodities.

Aluminum Corp. of China, or Chinalco, announced on February 12 it would invest US $19.5 billion in Australian mining giant Rio Tinto Group. Metal trader China Minmetals Corp is also planning to buy Australian mining firm OZ Minerals Ltd for AUS $2.6 billion (US $1.7 billion) in cash to ensure adequate supplies of non-ferrous metals.

Other steel makers including Sinosteel, Wuhan Iron and Steel, Shougang and Angang Steel have also stepped up plans to invest in Australian resources since the second half of last year, China National Business reported.

A senior mining company manager worried that the intensive foreign investment in Australian resources will cause the Australian government to become suspicious of and more conservative in approving such deals. Zeng Jiesheng, an analyst for mysteel.com, also warned of "blind investment," which he said could deal a heavy blow to Chinese steel makers in the case of future iron ore surpluses.

The deal with FMG is expected to secure a stable iron ore supply for Valin, said Wang Jun, deputy general manager of Hunan Valin Steel Tube & Wire, the listed arm of Hunan Valin Iron & Steel Group.

A long-term iron ore contract which was also signed yesterday will require FMG to supply 10 million tons of the raw material annually to Valin.

Debt-laden FMG are reportedly also in talks with China's sovereign-wealth fund, China Investment Corp., over share sale plans to fund its future expansion. As of December last year, FMG's total debt hit AUS $3.14 billion, as the gloomy global economy curbs iron ore demand.

Fore more details, please read the complete Chinese text. (http://www.china-cbn.com/s/n/000004/20090225/000000108077.shtml)

(China.org.cn, February 25, 2009)