Hebei Iron & Steel Group Co, China’s largest steel producer, is investing about C$194 million ($195 million) for a stake in Canada iron ore developer Alderon Iron Ore Corp., as Chinese steel makers look for cheaper ore to cut their production costs.
Hebei said it was the ideal time to invest in upstream assets as the broader market is taking a more cautious approach to iron ore demand.
The deal is part of efforts by Chinese steel producers to gain more control over foreign iron ore supplies, which is dominated by a handful of global miners.
Hebei will initially buy a near 20 percent stake in the Canadian company for C$88.3 million at C$3.42 per share, or a 0.6 percent discount to the last traded price, Hebei said in a statement on Friday.
Following that, Hebei will invest C$105.7 million, giving it the right to buy 25 percent interest in Alderon’s principal asset known as the Kami project.
The deal will also give Hebei the right to buy 60 percent of annual iron ore produced from the Kami project, the statement added.
Hebei’s investment into the iron ore sector also reflects the company’s optimistic outlook about China’s iron ore demand and comes at a time when iron ore miners, including BHP Billiton, Rio Tinto and Vale continue to bet on long-term demand growth from the world’s top buyer, China.
Bank of America Merrill Lynch was the exclusive financial adviser to Hebei in the transaction.