Grange Says May Seek Project Stake Sale Talks With Kobe

Grange Resources Ltd. (GRR), Australia’s largest iron ore pellet producer, may seek talks with steel mills in Asia including Kobe Steel Ltd. (5406) to invest in its A$2.6 billion ($2.7 billion) Southdown project.

Grange will consider several funding options for the project, including a stake sale, by the end of April, Russell Clark, chief executive officer of the Perth-based company, said today by phone. Grange, which owns 70 percent of the project in Western Australia, could sell another 30 percent stake, he said.

Kobe, Japan’s fourth-largest mill, this month agreed to buy an indirect 9.9 percent stake in Southdown from Sojitz Corp. (2768) for 25 billion yen ($298 million). Steelmakers including Kobe and ArcelorMittal (MT), the world’s biggest producer, are looking to secure iron ore and coking coal resources as increasing purchases by China and India tighten global supplies.

“We have spoken with Kobe, but we haven’t committed on any formal process,” said Clark in an interview. “One of the outcomes of our definitive feasibility study could be that we elect to divest some of the project, and then we would be targeting” companies such as Kobe, he said.

Kobe Steel spokesman Ryuichi Nakagami declined to comment.

Grange, whose biggest shareholder is Jiangsu Shagang Group Co., China’s largest closely held steelmaker, rose 1.6 percent to 62.5 cents at the close of trading in Sydney. Kobe bought its stake in Southdown by acquiring a 33 percent stake in a Sojitz unit that holds a 30 percent stake in the project.

‘Strategic Partner’

A number of Asian companies could potentially look at taking a stake in Southdown, Clark said.

“It needs to be a strategic partner with deep pockets and a need for” a long-term sales accord, he said yesterday. “Kobe is a good fit.”

The Southdown mine, located 90 kilometers (56 miles) northeast of Albany Port, is slated to produce about 10 million metric tons of iron ore a year starting 2015, according to Grange. The company also produces iron ore pellets from the Savage River mine in Australia’s Tasmania state.

Southdown’s estimated A$2.6 billion cost may rise “slightly” following the completion of the financial study, Clark said. The company said last month it expected the definitive report to be finished this quarter. Grange also is considering building a A$941 million pellet plant in Malaysia, he said.

“What we want to do is to get some cash flow from concentrate sales happening, and then look at the market and see whether or not a pellet plant makes sense,” Clark said. “Kobe bought into Sojitz’ share last week and they’re looking for pellet feed.”

Grange, targeting a final investment decision for Southdown at the end of the year, expects to complete debt funding with Chinese and Japanese development banks as well as export credit agencies, he said.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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