South Korea's POSCO agreed to buy a stake in Macarthur Coal for $404 million to secure stable coal supplies, a day after top steel maker ArcelorMittal raised its holding, potentially blocking any takeover of the Australian miner.

POSCO, the world's No.4 steel firm, said on Monday it had agreed to buy a 10 percent stake in Macarthur Coal from the Australian group's founder and major shareholder Ken Talbot for A$20 per share, paying around A$420 million.

The price is an 11 percent premium to Macarthur's closing share price of A$18 on Friday.

The deal follows news at the weekend that ArcelorMittal raised its stake in Macarthur to 19.9 percent by buying 5 percent from Talbot Group Holdings, also at A$20 per share, bringing its total investment in Macarthur to A$843 million.

Ken Talbot quit the board last week in a move viewed as pushing the $3.7 billion firm closer to a possible sale. Talbot's latest share sales will reduce his stake to around 4.7 percent.

The acquisition ... is in line with ArcelorMittal's strategy of securing its supply of raw materials, in this case through the acquisition of a stake in a leading supplier of low volatile pulverized coal injection coal, the Luxembourg-headquartered firm said.

POSCO said the purpose of its stake purchase was not for investment gains but also to secure a stable supply of raw materials. It added that it had no immediate plans to raise its investment in Macarthur.

Steel makers are looking to protect themselves against soaring raw material prices by building stakes in mining firms. Earlier this year POSCO agreed a near-doubling in coking coal prices with an Australian supplier.


Macarthur, which supplies steel mills with more than a third of the world's pulverised coal, has seen its shares more than double this year to A$20.73 on surging demand for coal from China and India and bubbling takeover talk.

Analysts have said there had been high expectations Arcelor would make a full takeover offer for Macarthur, which helped push its shares to successive record highs since Arcelor first bought shares in May.

But the shares started retreating last week as talks between Arcelor and Macarthur over an unspecified transaction ended without a deal.

Chinese state-owned CITIC Resources Holdings, which has a 17.66 percent in Macarthur, said this month it may sell its stake, raising speculation for a full takeover bid for Macarthur.

After rising as much as 8.9 percent, Macarthur shares fell 5 percent to A$17.11 by 0430 GMT, while POSCO rose 2.6 percent to 547,000 won.

The Macarthur share price is coming off because both Arcelor and POSCO taking stakes effectively mean that it would be very difficult, if not impossible, for someone else to take over the company, Andrew Pedler, an analyst at Wilson HTM, said.

Unless two of those three parties (Arcelor, POSCO, CITIC) want to sell their stake, it would not be possible to get control of Macarthur.

Under Australian takeover rules, a shareholder wanting more than 19.9 percent of a firm must make a full takeover offer.


Soaring coal prices, driven by tight supply and voracious demand from China and India, have put Australia's mining sector in play amid a global resources grab.

POSCO, which agreed earlier this year to pay Brazilian miner Vale 65 percent more for its iron ore, has yet to conclude a similar deal with Australian miners, from whom it secures around two-thirds of its iron ore requirements.

Despite sharp increases in raw material costs, steel firms are struggling to fully pass on cost rises as global economic growth slows down, threatening to curb demand for steel products.

POSCO announced last week a plan to raise steel prices by up to 21 percent from July, bringing this year's total price increase to 63 percent.

POSCO wants to boost self-sufficiency in raw materials, such as iron ore and coking coal, to 30 percent from around 20 percent by 2012 by investing in global mining projects.

Arcelor said its latest deal was subject to approval from Australia's Foreign Investment Review Board, while POSCO said the deal was conditional on approval from its board at a meeting scheduled next month. (Additional reporting by Huw Jones in Brussels and Jonathan Standing in Sydney) (Editing by Keiron Henderson, Jonathan Hopfner and Louise Heavens)

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