Posco Invests in Australian Iron Ore Mine, Seeks Stake in Brazilian Mill

Posco, the world’s third-biggest steelmaker, will invest in an iron ore project in Western Australia and seek a stake in a Brazilian mill to expand markets and raw material supplies outside of South Korea.

Posco will spend 194.7 billion ($162 million) to buy a 24.5 percent stake in the Australian Premium Iron project, the Pohang, South Korea-based company said today in a statement. It wants to buy about 20 percent of a steel venture planned by Vale SA and Dongkuk Steel Mill Co., it also said.

Chief Executive Officer Chung Joon Yang is building plants and investing in mines in countries including Indonesia, setting aside a record $8.7 billion for capital spending this year. Posco, which gets 70 percent of sales from the domestic market, will gain a foothold in the South American nation and be able to supply the U.S. from the Brazilian venture, it said.

“The iron ore mine investment is very positive,” Um Jin Seok, an analyst with Kyobo Securities Co., said in Seoul. “The Brazil venture is not a bad deal because Brazil is a fast-growing market. It’d be better to join an existing project instead of starting from the beginning.”

Posco shares rose 0.9 percent to close at 491,500 won in Seoul trading today, outperforming a 0.7 percent loss in the local benchmark Kospi index.

The investment in the Australian project, being developed by American Metals and Coal International Inc. and Aquila Resources Ltd., will boost Posco’s self-sufficiency ratio of the material to 34 percent from 18 percent, the company said. Posco will receive 9.8 million metric tons of iron ore a year from the mine, about a fifth of its annual needs, it said.

Iron Ore

Posco will buy its stake from American Metals and Coal, whose holding will drop to 25.5 percent. Aquila Resources will retain its 50 percent stake.

The Korean steelmaker will discuss investment terms in the proposed Brazilian mill with Vale, the world’s biggest iron-ore producer, and rival Dongkuk before making a final decision, the company said.

“Since we hope Posco will join the project, we think it’s positive,” Kim Sun Hong, a spokesman for Seoul-based Dongkuk, said by phone today. “We expect some synergy in that Posco has the world’s best expertise in terms of furnace construction and operations and we can also diversify investment funding for the project.”

The mill in Ceara is expected to produce 3 million tons of slabs a year after completion by 2014, Posco said.

Posco earlier this year agreed to buy as much as 15 percent of the Roy Hill iron ore project in Australia and a 7.8 percent stake in a coal mine in Mozambique. Posco’s Australian unit today increased its shareholding in Murchison Metals Ltd. to 13.91 percent, making it the iron ore miner’s largest shareholder.

Separately, Posco said today in a regulatory filing it will pay a mid-year dividend of 2,500 won.

Posco is ranked as the world’s third-biggest steelmaker by the World Steel Association, with ArcelorMittal and Baosteel Group Corp. rated above it. According to the American Institute for International Steel, the South Korean mill comes fourth, after ArcelorMittal, Hebei Iron & Steel Group and Baosteel.

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.

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