It was a strategic move to announce the discovery of a three-billion-ton iron ore deposit in Liaoning province, said an analyst who preferred not to be named, to help Chinese negotiators gain a bigger say at this year's iron ore price negotiations.
Reports of the discovery at Yizhongxin mine came on June 23, a week before the deadline of the annual price negotiations with overseas iron ore suppliers.
The reported three-billion-ton reserve, owned by a little known Shenzhen Yizhongxin Mining Investment, exceeds the combined reserves of more famous Angang and Bengang in the same province. According to the report from Benxi Municipal Government, it will be the biggest iron ore mine in Asia.
Industry experts in China said reports of new finds would help strengthen the hands of the Chinese steel producers, who have insisted on an average 40% reduction from last year's prices.
An analyst speaking on condition of anonymity noted that it was a strategic move to announce the discovery of such an iron mine at this point in time. He speculated that the announcement was timed to help Chinese negotiators gain a bigger say at this year's iron ore price negotiations.
Despite skepticism about the reported size of the ore reserve, analysts and investors are convinced that the steel industry as a whole, and Liaoning mining enterprises, would benefit from the find.
The three billion ton of iron ore is estimated to be worth around $246 billion, according to the latest spot market prices from steel information provider Steel Business Briefing.
Reports of the super ore reserve near Benxi, an industrial town in northeastern Liaoning province, began circulating the market on June 23. The following day, the prices of Angang shares surged 7.42% to 14.18 yuan ($2.08), while Bengang jumped the 10% daily limit to 7.48 yuan ($1.09) per share in Shenzhen.
Trading in the two listed companies was suspended on June 25 on rumors that they had invested in the newly discovered iron ore reserves.
On June 26, the two companies issued separate announcements to clarify their relations with the super mine. Angang Steel said the company did not consider investing in the mine.
Bengang Steel denied media reports that it had 20% stake in the Yizhongxin mine, but said that it intended to participate in its exploitation. Bengang added there would be no large asset restructuring or capital injection.
Jianhua Wang, research director with mysteel.com, said the two listed companies would definitely benefit from the new discovery at Yizhongxin mine. Bengang Steel, which is situated closer to the Yizhongxin mine, would enjoy steady iron ore supplies at low transportation costs, Wang said.
Shenzhen-listed Angang Steel shares dropped 3% to close at 13.19 yuan ($1.93) yesterday after resumption of trading on Monday, while Bengang Steel increased 1.42% to close at 7.87 yuan ($1.15).
In fact, large iron ore deposits were discovered at the Yizhongxin mine in the 1970s, but there was no accurate estimation of the total reserves because of the lack of sophisticated exploration equipment, said the analyst.
In 2006, experts estimated the reserve in Yizhongxin at one billion tons, and early this year, it was scaled up to two billion tons. The latest estimate of three billion tons was made a few weeks ago.
The cost of mining the ore is, however, expected to be prohibitively high as it is buried nearly 1 km below the ground surface.
But the discovery is still great news for the steel industry as its existence can in any way help the price negotiation. As the minister of land and resources had said recently, a $1 reduction in the price can save up to $500 million a year in imports.
($ 1 = 6.83312151yuan)