China's steel giant, Ansteel, got government approval from China for an A$162.06 million ($130.69 million) share placement with Australian iron ore miner Gindalbie Metals Ltd, a spokesman with Ansteel said Last Saturday.
The approval came last Tuesday, marking the latest success of a Chinese steel mill securing its iron ore supplies through overseas investment.
It allows the Anshan Iron and Steel Group (Ansteel) in northeast China's Liaoning province to increase its interest in Gindalbie from 12.6% to 36.28% to become its biggest shareholder, according to the spokesman of Ansteel.
The purchase will be completed within seven days, Gindalbie said. Then the two sides will invest a A$534-million ($430.62 million)in Karara iron ore project in western Australia, with a 50-50 ownership.
Gindalbie also said the balance of the capital for the Karara project will come through a Project Loan Facility of up to A$1.2 billion ($967.7 million) from the China Development Bank (CDB).
Gindalbie proposed Ansteel to buy more of its shares in August last year. The application was approved by the board of Gindalbie early February.
In order to get the approval from the Australian government, which is key to the deal, AnSteel had agreed on a number of undertakings that would support Australian mining jobs and protect Australia's investment participation in the Chinese resources market.
The two companies received approval for the transaction from the Australian Foreign Investment Review Board in May.
Since late last year, several Chinese companies have made attempts to acquire overseas assets to cash in on the low resource prices amid the financial crisis. Minmetals, a leading non-ferrous metal company, earlier this month won control over most of the assets of Australian miner OZ Minerals Ltd.
China should reconsider its overall strategy in overseas mergers and acquisitions, said an analyst who declined to be named.
China is inexperienced in accessing the overseas resources. the analyst said. The country is building up national metal reserves while at the same time its companies are bidding for similar assets abroad. These efforts have been pushing up global commodity prices. People should be able to tell whether they are wise moves, he added.
(A$ 1=US $0.8064)